Correlation Between MAGIC SOFTWARE and Ares Management

Can any of the company-specific risk be diversified away by investing in both MAGIC SOFTWARE and Ares Management 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 Ares Management into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MAGIC SOFTWARE ENTR and Ares Management Corp, you can compare the effects of market volatilities on MAGIC SOFTWARE and Ares Management 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 Ares Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of MAGIC SOFTWARE and Ares Management.

Diversification Opportunities for MAGIC SOFTWARE and Ares Management

0.66

Correlation Coefficient

MAGIC SOFTWARE  Ares Management

Poor diversification

The 3 months correlation between MAGIC and Ares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp 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 ENTR are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and Ares Management go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and Ares Management

Assuming the 90 days trading horizon MAGIC SOFTWARE is expected to generate 1.53 times less return on investment than Ares Management. In addition to that, MAGIC SOFTWARE is 1.18 times more volatile than Ares Management Corp. It trades about 0.13 of its total potential returns per unit of risk. Ares Management Corp is currently generating about 0.23 per unit of volatility. If you would invest  12,291  in Ares Management Corp on September 8, 2024 and sell it today you would earn a total of  4,425  from holding Ares Management Corp or generate 36.0% return on investment over 90 days.

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

MAGIC SOFTWARE ENTR  vs.  Ares Management Corp

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MAGIC SOFTWARE ENTR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, MAGIC SOFTWARE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ares Management Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Ares Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MAGIC SOFTWARE and Ares Management

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

The idea behind MAGIC SOFTWARE ENTR and Ares Management Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.