Correlation Between MAGIC SOFTWARE and Amazon

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

Diversification Opportunities for MAGIC SOFTWARE and Amazon

0.84

Correlation Coefficient

MAGIC SOFTWARE  Amazon

Very poor diversification

The 3 months correlation between MAGIC and Amazon is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and Amazon go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and Amazon

Assuming the 90 days trading horizon MAGIC SOFTWARE is expected to generate 18.37 times less return on investment than Amazon. In addition to that, MAGIC SOFTWARE is 1.51 times more volatile than Amazon Inc. It trades about 0.0 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.09 per unit of volatility. If you would invest  10,286  in Amazon Inc on October 24, 2024 and sell it today you would earn a total of  11,714  from holding Amazon Inc or generate 113.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

MAGIC SOFTWARE ENTR  vs.  Amazon Inc

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MAGIC SOFTWARE ENTR are ranked lower than 11 (%) 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.

Amazon Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MAGIC SOFTWARE and Amazon

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

The idea behind MAGIC SOFTWARE ENTR and Amazon Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.