Correlation Between Magic Software and Microsoft

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

Diversification Opportunities for Magic Software and Microsoft

-0.25

Correlation Coefficient

Magic Software  Microsoft

Very good diversification

The 3 months correlation between Magic and Microsoft is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Magic Software i.e., Magic Software and Microsoft go up and down completely randomly.

Pair Corralation between Magic Software and Microsoft

Assuming the 90 days horizon Magic Software Enterprises is expected to generate 1.69 times more return on investment than Microsoft. However, Magic Software is 1.69 times more volatile than Microsoft. It trades about 0.06 of its potential returns per unit of risk. Microsoft is currently generating about -0.13 per unit of risk. If you would invest  1,090  in Magic Software Enterprises on December 30, 2024 and sell it today you would earn a total of  100.00  from holding Magic Software Enterprises or generate 9.17% 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.  Microsoft

Magic Software Enter

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magic Software may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Magic Software and Microsoft

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

The idea behind Magic Software Enterprises and Microsoft 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.