Correlation Between Magic Software and PSI Software

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

Diversification Opportunities for Magic Software and PSI Software

0.44

Correlation Coefficient

Magic Software  PSI Software

Very weak diversification

The 3 months correlation between Magic and PSI is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and PSI Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSI Software AG 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 PSI Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSI Software AG has no effect on the direction of Magic Software i.e., Magic Software and PSI Software go up and down completely randomly.

Pair Corralation between Magic Software and PSI Software

Assuming the 90 days horizon Magic Software is expected to generate 1.33 times less return on investment than PSI Software. But when comparing it to its historical volatility, Magic Software Enterprises is 1.03 times less risky than PSI Software. It trades about 0.14 of its potential returns per unit of risk. PSI Software AG is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,130  in PSI Software AG on November 19, 2024 and sell it today you would earn a total of  610.00  from holding PSI Software AG or generate 28.64% return on investment over 90 days.

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

Magic Software Enterprises  vs.  PSI Software AG

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 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magic Software reported solid returns over the last few months and may actually be approaching a breakup point.

PSI Software AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PSI Software AG are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, PSI Software exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magic Software and PSI Software

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

The idea behind Magic Software Enterprises and PSI Software AG 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.