Correlation Between MAGIC SOFTWARE and Mitsubishi Materials

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

Diversification Opportunities for MAGIC SOFTWARE and Mitsubishi Materials

0.57

Correlation Coefficient

MAGIC SOFTWARE  Mitsubishi Materials

Very weak diversification

The 3 months correlation between MAGIC and Mitsubishi is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding MAGIC SOFTWARE ENTR and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials 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 Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of MAGIC SOFTWARE i.e., MAGIC SOFTWARE and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between MAGIC SOFTWARE and Mitsubishi Materials

Assuming the 90 days trading horizon MAGIC SOFTWARE ENTR is expected to generate 1.62 times more return on investment than Mitsubishi Materials. However, MAGIC SOFTWARE is 1.62 times more volatile than Mitsubishi Materials. It trades about 0.07 of its potential returns per unit of risk. Mitsubishi Materials is currently generating about 0.09 per unit of risk. If you would invest  1,110  in MAGIC SOFTWARE ENTR on December 25, 2024 and sell it today you would earn a total of  90.00  from holding MAGIC SOFTWARE ENTR or generate 8.11% return on investment over 90 days.

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

MAGIC SOFTWARE ENTR  vs.  Mitsubishi Materials

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MAGIC SOFTWARE ENTR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MAGIC SOFTWARE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Mitsubishi Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward-looking indicators, Mitsubishi Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with MAGIC SOFTWARE and Mitsubishi Materials

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

The idea behind MAGIC SOFTWARE ENTR and Mitsubishi Materials 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.