Correlation Between Xero and Macquarie Technology
Can any of the company-specific risk be diversified away by investing in both Xero and Macquarie Technology 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 Xero and Macquarie Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xero and Macquarie Technology Group, you can compare the effects of market volatilities on Xero and Macquarie Technology 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 Xero with a short position of Macquarie Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xero and Macquarie Technology.
Diversification Opportunities for Xero and Macquarie Technology
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Xero and Macquarie is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Xero and Macquarie Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Technology and Xero 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 Xero are associated (or correlated) with Macquarie Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Technology has no effect on the direction of Xero i.e., Xero and Macquarie Technology go up and down completely randomly.
Pair Corralation between Xero and Macquarie Technology
Assuming the 90 days trading horizon Xero is expected to generate 1.24 times more return on investment than Macquarie Technology. However, Xero is 1.24 times more volatile than Macquarie Technology Group. It trades about 0.39 of its potential returns per unit of risk. Macquarie Technology Group is currently generating about 0.19 per unit of risk. If you would invest 15,115 in Xero on August 29, 2024 and sell it today you would earn a total of 2,299 from holding Xero or generate 15.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Xero vs. Macquarie Technology Group
Performance |
| Timeline |
| Xero |
| Macquarie Technology |
Xero and Macquarie Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xero and Macquarie Technology
The main advantage of trading using opposite Xero and Macquarie Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xero position performs unexpectedly, Macquarie Technology 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 Macquarie Technology will offset losses from the drop in Macquarie Technology's long position.The idea behind Xero and Macquarie Technology 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.| Macquarie Technology vs. National Australia Bank | Macquarie Technology vs. National Australia Bank | Macquarie Technology vs. Westpac Banking | Macquarie Technology vs. National Australia Bank |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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