Correlation Between IDP Education and Macquarie Bank

Can any of the company-specific risk be diversified away by investing in both IDP Education and Macquarie Bank 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 IDP Education and Macquarie Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IDP Education and Macquarie Bank Limited, you can compare the effects of market volatilities on IDP Education and Macquarie Bank 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 IDP Education with a short position of Macquarie Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDP Education and Macquarie Bank.

Diversification Opportunities for IDP Education and Macquarie Bank

-0.43

Correlation Coefficient

IDP Education  Macquarie Bank

Very good diversification

The 3 months correlation between IDP and Macquarie is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding IDP Education and Macquarie Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Bank and IDP Education 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 IDP Education are associated (or correlated) with Macquarie Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Bank has no effect on the direction of IDP Education i.e., IDP Education and Macquarie Bank go up and down completely randomly.

Pair Corralation between IDP Education and Macquarie Bank

Assuming the 90 days trading horizon IDP Education is expected to under-perform the Macquarie Bank. In addition to that, IDP Education is 3.33 times more volatile than Macquarie Bank Limited. It trades about -0.12 of its total potential returns per unit of risk. Macquarie Bank Limited is currently generating about -0.01 per unit of volatility. If you would invest  10,400  in Macquarie Bank Limited on September 29, 2024 and sell it today you would lose (19.00) from holding Macquarie Bank Limited or give up 0.18% of portfolio value over 90 days.

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

IDP Education  vs.  Macquarie Bank Limited

IDP Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDP Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Macquarie Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Bank Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Macquarie Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IDP Education and Macquarie Bank

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

The idea behind IDP Education and Macquarie Bank Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.