Correlation Between Macquarie Technology and EP Financial

Can any of the company-specific risk be diversified away by investing in both Macquarie Technology and EP 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 Macquarie Technology and EP Financial 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 EP Financial Group, you can compare the effects of market volatilities on Macquarie Technology and EP 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 Macquarie Technology with a short position of EP Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Macquarie Technology and EP Financial.

Diversification Opportunities for Macquarie Technology and EP Financial

0.46

Correlation Coefficient

Macquarie Technology  EP Financial

Very weak diversification

The 3 months correlation between Macquarie and EP1 is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Technology Group and EP Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EP Financial Group 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 EP Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EP Financial Group has no effect on the direction of Macquarie Technology i.e., Macquarie Technology and EP Financial go up and down completely randomly.

Pair Corralation between Macquarie Technology and EP Financial

Assuming the 90 days trading horizon Macquarie Technology Group is expected to under-perform the EP Financial. But the stock apears to be less risky and, when comparing its historical volatility, Macquarie Technology Group is 1.71 times less risky than EP Financial. The stock trades about -0.12 of its potential returns per unit of risk. The EP Financial Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  50.00  in EP Financial Group on September 19, 2024 and sell it today you would lose (1.00) from holding EP Financial Group or give up 2.0% of portfolio value over 90 days.

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

Macquarie Technology Group  vs.  EP Financial Group

Macquarie Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Technology Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Macquarie Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

EP Financial Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EP Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, EP Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Technology and EP Financial

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

The idea behind Macquarie Technology Group and EP 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.