Correlation Between Highlight Communications and Magic Software
Can any of the company-specific risk be diversified away by investing in both Highlight Communications 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 Highlight Communications and Magic Software into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Highlight Communications AG and Magic Software Enterprises, you can compare the effects of market volatilities on Highlight Communications 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 Highlight Communications with a short position of Magic Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highlight Communications and Magic Software.
Diversification Opportunities for Highlight Communications and Magic Software
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Highlight and Magic is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Highlight Communications AG 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 Highlight Communications 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 Highlight Communications AG 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 Highlight Communications i.e., Highlight Communications and Magic Software go up and down completely randomly.
Pair Corralation between Highlight Communications and Magic Software
Assuming the 90 days trading horizon Highlight Communications AG is expected to generate 4.7 times more return on investment than Magic Software. However, Highlight Communications is 4.7 times more volatile than Magic Software Enterprises. It trades about 0.24 of its potential returns per unit of risk. Magic Software Enterprises is currently generating about -0.01 per unit of risk. If you would invest 114.00 in Highlight Communications AG on October 15, 2024 and sell it today you would earn a total of 33.00 from holding Highlight Communications AG or generate 28.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Highlight Communications AG vs. Magic Software Enterprises
Performance |
| Timeline |
| Highlight Communications |
| Magic Software Enter |
Highlight Communications and Magic Software Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Highlight Communications and Magic Software
The main advantage of trading using opposite Highlight Communications and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highlight Communications 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 Highlight Communications AG 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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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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