Correlation Between Xref and Magellan Financial
Can any of the company-specific risk be diversified away by investing in both Xref 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 Xref and Magellan Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xref and Magellan Financial Group, you can compare the effects of market volatilities on Xref 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 Xref with a short position of Magellan Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xref and Magellan Financial.
Diversification Opportunities for Xref and Magellan Financial
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Xref and Magellan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Xref and Magellan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magellan Financial and Xref 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 Xref 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 Xref i.e., Xref and Magellan Financial go up and down completely randomly.
Pair Corralation between Xref and Magellan Financial
Assuming the 90 days trading horizon Xref is expected to generate 12.38 times less return on investment than Magellan Financial. But when comparing it to its historical volatility, Xref is 1.44 times less risky than Magellan Financial. It trades about 0.01 of its potential returns per unit of risk. Magellan Financial Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,062 in Magellan Financial Group on September 13, 2024 and sell it today you would earn a total of 46.00 from holding Magellan Financial Group or generate 4.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Xref vs. Magellan Financial Group
Performance |
| Timeline |
| Xref |
| Magellan Financial |
Xref and Magellan Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xref and Magellan Financial
The main advantage of trading using opposite Xref and Magellan Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xref 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.The idea behind Xref and Magellan Financial Group 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.| Magellan Financial vs. Energy Technologies Limited | Magellan Financial vs. WiseTech Global Limited | Magellan Financial vs. Environmental Clean Technologies | Magellan Financial vs. EROAD |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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