Correlation Between Prime Financial and Magellan Financial
Can any of the company-specific risk be diversified away by investing in both Prime Financial and Magellan Financial 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 Prime Financial and Magellan Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prime Financial Group and Magellan Financial Group, you can compare the effects of market volatilities on Prime Financial and Magellan Financial 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 Prime Financial with a short position of Magellan Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Financial and Magellan Financial.
Diversification Opportunities for Prime Financial and Magellan Financial
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prime and Magellan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Prime Financial Group and Magellan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magellan Financial and Prime Financial 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 Prime Financial Group are associated (or correlated) with Magellan Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magellan Financial has no effect on the direction of Prime Financial i.e., Prime Financial and Magellan Financial go up and down completely randomly.
Pair Corralation between Prime Financial and Magellan Financial
Assuming the 90 days trading horizon Prime Financial is expected to generate 1.13 times less return on investment than Magellan Financial. In addition to that, Prime Financial is 1.2 times more volatile than Magellan Financial Group. It trades about 0.03 of its total potential returns per unit of risk. Magellan Financial Group is currently generating about 0.04 per unit of volatility. If you would invest 795.00 in Magellan Financial Group on August 29, 2024 and sell it today you would earn a total of 293.00 from holding Magellan Financial Group or generate 36.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prime Financial Group vs. Magellan Financial Group
Performance |
| Timeline |
| Prime Financial Group |
| Magellan Financial |
Prime Financial and Magellan Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prime Financial and Magellan Financial
The main advantage of trading using opposite Prime Financial and Magellan Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Financial position performs unexpectedly, Magellan Financial 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 Magellan Financial will offset losses from the drop in Magellan Financial's long position.| Prime Financial vs. Champion Iron | Prime Financial vs. Ridley | Prime Financial vs. Peel Mining | Prime Financial vs. Australian Dairy Farms |
| Magellan Financial vs. Champion Iron | Magellan Financial vs. Ridley | Magellan Financial vs. Peel Mining | Magellan Financial vs. Australian Dairy Farms |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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