Correlation Between Macquarie Technology and Xero

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

Diversification Opportunities for Macquarie Technology and Xero

0.66

Correlation Coefficient

Macquarie Technology  Xero

Poor diversification

The 3 months correlation between Macquarie and Xero is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Technology Group and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero 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 Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero has no effect on the direction of Macquarie Technology i.e., Macquarie Technology and Xero go up and down completely randomly.

Pair Corralation between Macquarie Technology and Xero

Assuming the 90 days trading horizon Macquarie Technology Group is expected to under-perform the Xero. In addition to that, Macquarie Technology is 1.09 times more volatile than Xero. It trades about -0.01 of its total potential returns per unit of risk. Xero is currently generating about 0.02 per unit of volatility. If you would invest  16,817  in Xero on October 22, 2024 and sell it today you would earn a total of  50.00  from holding Xero or generate 0.3% return on investment over 90 days.

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

Macquarie Technology Group  vs.  Xero

Macquarie Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Technology Group are ranked lower than 3 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Xero

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xero unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Technology and Xero

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

The idea behind Macquarie Technology Group and Xero 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.