Correlation Between Magic Software and VNET Group

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

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

Diversification Opportunities for Magic Software and VNET Group

0.38

Correlation Coefficient

Magic Software  VNET Group

Weak diversification

The 3 months correlation between Magic and VNET is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and VNET Group DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VNET Group DRC and Magic Software 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 Magic Software Enterprises are associated (or correlated) with VNET Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VNET Group DRC has no effect on the direction of Magic Software i.e., Magic Software and VNET Group go up and down completely randomly.

Pair Corralation between Magic Software and VNET Group

Given the investment horizon of 90 days Magic Software is expected to generate 1.31 times less return on investment than VNET Group. But when comparing it to its historical volatility, Magic Software Enterprises is 2.25 times less risky than VNET Group. It trades about 0.06 of its potential returns per unit of risk. VNET Group DRC is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  155.00  in VNET Group DRC on January 30, 2024 and sell it today you would earn a total of  3.00  from holding VNET Group DRC or generate 1.94% return on investment over 90 days.

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

Magic Software Enterprises  vs.  VNET Group DRC

Magic Software Enter

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Magic Software exhibited solid returns over the last few months and may actually be approaching a breakup point.

VNET Group DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VNET Group DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, VNET Group is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Magic Software and VNET Group

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

The idea behind Magic Software Enterprises and VNET Group DRC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.