Correlation Between Magic Software and Nextage Therapeutics

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

Diversification Opportunities for Magic Software and Nextage Therapeutics

0.32

Correlation Coefficient

Magic Software  Nextage Therapeutics

Weak diversification

The 3 months correlation between Magic and Nextage is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Nextage Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextage Therapeutics 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 Nextage Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextage Therapeutics has no effect on the direction of Magic Software i.e., Magic Software and Nextage Therapeutics go up and down completely randomly.

Pair Corralation between Magic Software and Nextage Therapeutics

Assuming the 90 days trading horizon Magic Software is expected to generate 2.18 times less return on investment than Nextage Therapeutics. But when comparing it to its historical volatility, Magic Software Enterprises is 2.34 times less risky than Nextage Therapeutics. It trades about 0.07 of its potential returns per unit of risk. Nextage Therapeutics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,400  in Nextage Therapeutics on October 10, 2024 and sell it today you would earn a total of  1,500  from holding Nextage Therapeutics or generate 23.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.95%
Values	Daily Returns

Magic Software Enterprises  vs.  Nextage Therapeutics

Magic Software Enter

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 6 (%) 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.

Nextage Therapeutics

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Magic Software and Nextage Therapeutics

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

The idea behind Magic Software Enterprises and Nextage Therapeutics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.