Correlation Between Magic Software and China Southern

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

Diversification Opportunities for Magic Software and China Southern

0.79

Correlation Coefficient

Magic Software  China Southern

Poor diversification

The 3 months correlation between Magic and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines 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 China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of Magic Software i.e., Magic Software and China Southern go up and down completely randomly.

Pair Corralation between Magic Software and China Southern

Assuming the 90 days horizon Magic Software is expected to generate 2.98 times less return on investment than China Southern. But when comparing it to its historical volatility, Magic Software Enterprises is 1.39 times less risky than China Southern. It trades about 0.05 of its potential returns per unit of risk. China Southern Airlines is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  34.00  in China Southern Airlines on October 4, 2024 and sell it today you would earn a total of  16.00  from holding China Southern Airlines or generate 47.06% 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.  China Southern Airlines

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 nearly fragile basic indicators, Magic Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Southern Airlines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magic Software and China Southern

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

The idea behind Magic Software Enterprises and China Southern Airlines 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.