Correlation Between Magic Software and Human Xtensions

Can any of the company-specific risk be diversified away by investing in both Magic Software and Human Xtensions at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Magic Software and Human Xtensions into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Magic Software Enterprises and Human Xtensions, you can compare the effects of market volatilities on Magic Software and Human Xtensions and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Magic Software with a short position of Human Xtensions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magic Software and Human Xtensions.

Diversification Opportunities for Magic Software and Human Xtensions

-0.29

Correlation Coefficient

Magic Software  Human Xtensions

Very good diversification

The 3 months correlation between Magic and Human is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Human Xtensions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Human Xtensions and Magic Software is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Magic Software Enterprises are associated (or correlated) with Human Xtensions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Human Xtensions has no effect on the direction of Magic Software i.e., Magic Software and Human Xtensions go up and down completely randomly.

Pair Corralation between Magic Software and Human Xtensions

Assuming the 90 days trading horizon Magic Software Enterprises is expected to generate 0.5 times more return on investment than Human Xtensions. However, Magic Software Enterprises is 2.01 times less risky than Human Xtensions. It trades about 0.1 of its potential returns per unit of risk. Human Xtensions is currently generating about -0.22 per unit of risk. If you would invest  394,400  in Magic Software Enterprises on September 3, 2024 and sell it today you would earn a total of  43,000  from holding Magic Software Enterprises or generate 10.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Magic Software Enterprises  vs.  Human Xtensions

Magic Software Enter

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Magic Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Human Xtensions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Human Xtensions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Magic Software and Human Xtensions

The main advantage of trading using opposite Magic Software and Human Xtensions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magic Software position performs unexpectedly, Human Xtensions can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Human Xtensions will offset losses from the drop in Human Xtensions' long position.

The idea behind Magic Software Enterprises and Human Xtensions pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.