Correlation Between ScanSource and Magic Software

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Can any of the company-specific risk be diversified away by investing in both ScanSource 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 ScanSource and Magic Software into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ScanSource and Magic Software Enterprises, you can compare the effects of market volatilities on ScanSource 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 ScanSource with a short position of Magic Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of ScanSource and Magic Software.

Diversification Opportunities for ScanSource and Magic Software

ScanSourceMagicDiversified AwayScanSourceMagicDiversified Away100%
0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between ScanSource and Magic is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource 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 ScanSource 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 ScanSource 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 ScanSource i.e., ScanSource and Magic Software go up and down completely randomly.

Pair Corralation between ScanSource and Magic Software

Assuming the 90 days horizon ScanSource is expected to under-perform the Magic Software. But the stock apears to be less risky and, when comparing its historical volatility, ScanSource is 1.32 times less risky than Magic Software. The stock trades about -0.13 of its potential returns per unit of risk. The Magic Software Enterprises is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,038  in Magic Software Enterprises on September 27, 2024 and sell it today you would earn a total of  82.00  from holding Magic Software Enterprises or generate 7.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

ScanSource  vs.  Magic Software Enterprises

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-505101520
JavaScript chart by amCharts 3.21.15SC3 MGK
       Timeline  
ScanSource 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec404244464850
Magic Software Enter 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magic Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec9.51010.51111.5

ScanSource and Magic Software Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.78-5.82-3.87-1.920.01.933.935.937.939.93 0.020.030.040.050.060.07
JavaScript chart by amCharts 3.21.15SC3 MGK
       Returns  

Pair Trading with ScanSource and Magic Software

The main advantage of trading using opposite ScanSource and Magic Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource 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 ScanSource 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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