Correlation Between MAGIC SOFTWARE and SIMS

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

Diversification Opportunities for MAGIC SOFTWARE and SIMS

-0.1

Correlation Coefficient

MAGIC SOFTWARE  SIMS

Good diversification

The 3 months correlation between MAGIC and SIMS is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and SIMS LTD ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS LTD ADR 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 SIMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS LTD ADR has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and SIMS go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and SIMS

Assuming the 90 days trading horizon MAGIC SOFTWARE is expected to generate 1.55 times less return on investment than SIMS. But when comparing it to its historical volatility, MAGIC SOFTWARE ENTR is 1.13 times less risky than SIMS. It trades about 0.28 of its potential returns per unit of risk. SIMS LTD ADR is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  695.00  in SIMS LTD ADR on October 25, 2024 and sell it today you would earn a total of  100.00  from holding SIMS LTD ADR or generate 14.39% 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.  SIMS LTD ADR

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.

SIMS LTD ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS LTD ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SIMS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MAGIC SOFTWARE and SIMS

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

The idea behind MAGIC SOFTWARE ENTR and SIMS LTD ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.