Correlation Between Magic Software and Israel Shipyards

Can any of the company-specific risk be diversified away by investing in both Magic Software and Israel Shipyards 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 Israel Shipyards 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 Israel Shipyards, you can compare the effects of market volatilities on Magic Software and Israel Shipyards 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 Israel Shipyards. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magic Software and Israel Shipyards.

Diversification Opportunities for Magic Software and Israel Shipyards

0.63

Correlation Coefficient

Magic Software  Israel Shipyards

Poor diversification

The 3 months correlation between Magic and Israel is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Israel Shipyards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Israel Shipyards 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 Israel Shipyards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Israel Shipyards has no effect on the direction of Magic Software i.e., Magic Software and Israel Shipyards go up and down completely randomly.

Pair Corralation between Magic Software and Israel Shipyards

Assuming the 90 days trading horizon Magic Software is expected to generate 1.27 times less return on investment than Israel Shipyards. But when comparing it to its historical volatility, Magic Software Enterprises is 1.06 times less risky than Israel Shipyards. It trades about 0.11 of its potential returns per unit of risk. Israel Shipyards is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,013,079  in Israel Shipyards on December 30, 2024 and sell it today you would earn a total of  180,921  from holding Israel Shipyards or generate 17.86% return on investment over 90 days.

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

Magic Software Enterprises  vs.  Israel Shipyards

Magic Software Enter

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 8 (%) 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.

Israel Shipyards

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Israel Shipyards are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Israel Shipyards sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magic Software and Israel Shipyards

The main advantage of trading using opposite Magic Software and Israel Shipyards positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magic Software position performs unexpectedly, Israel Shipyards 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 Israel Shipyards will offset losses from the drop in Israel Shipyards' long position.

The idea behind Magic Software Enterprises and Israel Shipyards 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.