Correlation Between Parsons Corp and Magic Software

Can any of the company-specific risk be diversified away by investing in both Parsons Corp and Magic Software 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 Parsons Corp and Magic Software into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Parsons Corp and Magic Software Enterprises, you can compare the effects of market volatilities on Parsons Corp and Magic Software 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 Parsons Corp with a short position of Magic Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parsons Corp and Magic Software.

Diversification Opportunities for Parsons Corp and Magic Software

-0.63

Correlation Coefficient

Parsons Corp  Magic Software

Excellent diversification

The 3 months correlation between Parsons and Magic is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Parsons Corp and Magic Software Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magic Software Enter and Parsons Corp 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 Parsons Corp are associated (or correlated) with Magic Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magic Software Enter has no effect on the direction of Parsons Corp i.e., Parsons Corp and Magic Software go up and down completely randomly.

Pair Corralation between Parsons Corp and Magic Software

Considering the 90-day investment horizon Parsons Corp is expected to generate 2.74 times less return on investment than Magic Software. But when comparing it to its historical volatility, Parsons Corp is 1.93 times less risky than Magic Software. It trades about 0.15 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,184  in Magic Software Enterprises on October 23, 2024 and sell it today you would earn a total of  92.00  from holding Magic Software Enterprises or generate 7.77% return on investment over 90 days.

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

Parsons Corp  vs.  Magic Software Enterprises

Parsons Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parsons Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Magic Software Enter

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Magic Software exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parsons Corp and Magic Software

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

The idea behind Parsons Corp and Magic Software Enterprises 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.