Correlation Between Macquarie Technology and Commonwealth Bank

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

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

Diversification Opportunities for Macquarie Technology and Commonwealth Bank

0.48

Correlation Coefficient

Macquarie Technology  Commonwealth Bank

Very weak diversification

The 3 months correlation between Macquarie and Commonwealth is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Technology Group and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Macquarie Technology 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 Macquarie Technology Group are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of Macquarie Technology i.e., Macquarie Technology and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Macquarie Technology and Commonwealth Bank

Assuming the 90 days trading horizon Macquarie Technology is expected to generate 2.83 times less return on investment than Commonwealth Bank. In addition to that, Macquarie Technology is 1.25 times more volatile than Commonwealth Bank. It trades about 0.05 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about 0.19 per unit of volatility. If you would invest  13,274  in Commonwealth Bank on October 4, 2024 and sell it today you would earn a total of  2,083  from holding Commonwealth Bank or generate 15.69% return on investment over 90 days.

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

Macquarie Technology Group  vs.  Commonwealth Bank

Macquarie Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Technology Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Macquarie Technology is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Commonwealth Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Technology and Commonwealth Bank

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

The idea behind Macquarie Technology Group and Commonwealth Bank 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.