Correlation Between Sapiens International and Magic Software

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

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

Diversification Opportunities for Sapiens International and Magic Software

-0.31

Correlation Coefficient

Sapiens International  Magic Software

Very good diversification

The 3 months correlation between Sapiens and Magic is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sapiens International 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 Sapiens International 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 Sapiens International 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 Sapiens International i.e., Sapiens International and Magic Software go up and down completely randomly.

Pair Corralation between Sapiens International and Magic Software

Assuming the 90 days trading horizon Sapiens International is expected to generate 1.94 times less return on investment than Magic Software. But when comparing it to its historical volatility, Sapiens International is 1.2 times less risky than Magic Software. It trades about 0.01 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  450,889  in Magic Software Enterprises on November 29, 2024 and sell it today you would earn a total of  3,111  from holding Magic Software Enterprises or generate 0.69% return on investment over 90 days.

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

Sapiens International  vs.  Magic Software Enterprises

Sapiens International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sapiens International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sapiens International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Magic Software Enter

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Magic Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sapiens International and Magic Software

The main advantage of trading using opposite Sapiens International and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapiens International 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 Sapiens International 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.

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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.