Correlation Between STMicroelectronics and MAGIC SOFTWARE

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

By analyzing existing cross correlation between STMicroelectronics NV and MAGIC SOFTWARE ENTR, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of MAGIC SOFTWARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and MAGIC SOFTWARE.

Diversification Opportunities for STMicroelectronics and MAGIC SOFTWARE

-0.26

Correlation Coefficient

STMicroelectronics  MAGIC SOFTWARE

Very good diversification

The 3 months correlation between STMicroelectronics and MAGIC is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and MAGIC SOFTWARE ENTR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAGIC SOFTWARE ENTR and STMicroelectronics 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 STMicroelectronics NV 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 ENTR has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and MAGIC SOFTWARE go up and down completely randomly.

Pair Corralation between STMicroelectronics and MAGIC SOFTWARE

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the MAGIC SOFTWARE. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.21 times less risky than MAGIC SOFTWARE. The stock trades about -0.02 of its potential returns per unit of risk. The MAGIC SOFTWARE ENTR is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,329  in MAGIC SOFTWARE ENTR on September 29, 2024 and sell it today you would lose (219.00) from holding MAGIC SOFTWARE ENTR or give up 16.48% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  MAGIC SOFTWARE ENTR

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

MAGIC SOFTWARE ENTR

Risk-Adjusted Performance

5 of 100

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 January 2025.

Pair Trading with STMicroelectronics and MAGIC SOFTWARE

The main advantage of trading using opposite STMicroelectronics and MAGIC SOFTWARE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV and MAGIC SOFTWARE ENTR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.