Correlation Between MAGIC SOFTWARE and Alcoa Corp

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

Diversification Opportunities for MAGIC SOFTWARE and Alcoa Corp

-0.04

Correlation Coefficient

MAGIC SOFTWARE  Alcoa Corp

Good diversification

The 3 months correlation between MAGIC and Alcoa is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and Alcoa Corp go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and Alcoa Corp

Assuming the 90 days trading horizon MAGIC SOFTWARE ENTR is expected to generate 0.86 times more return on investment than Alcoa Corp. However, MAGIC SOFTWARE ENTR is 1.16 times less risky than Alcoa Corp. It trades about 0.11 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.07 per unit of risk. If you would invest  1,086  in MAGIC SOFTWARE ENTR on December 20, 2024 and sell it today you would earn a total of  154.00  from holding MAGIC SOFTWARE ENTR or generate 14.18% return on investment over 90 days.

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

MAGIC SOFTWARE ENTR  vs.  Alcoa Corp

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MAGIC SOFTWARE ENTR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MAGIC SOFTWARE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MAGIC SOFTWARE and Alcoa Corp

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

The idea behind MAGIC SOFTWARE ENTR and Alcoa 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.