Correlation Between Macquarie Bank and Energy Resources

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

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

Diversification Opportunities for Macquarie Bank and Energy Resources

-0.45

Correlation Coefficient

Macquarie Bank  Energy Resources

Very good diversification

The 3 months correlation between Macquarie and Energy is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Bank Limited and Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Resources and Macquarie Bank 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 Bank Limited are associated (or correlated) with Energy Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Resources has no effect on the direction of Macquarie Bank i.e., Macquarie Bank and Energy Resources go up and down completely randomly.

Pair Corralation between Macquarie Bank and Energy Resources

Assuming the 90 days trading horizon Macquarie Bank is expected to generate 546.73 times less return on investment than Energy Resources. But when comparing it to its historical volatility, Macquarie Bank Limited is 70.22 times less risky than Energy Resources. It trades about 0.01 of its potential returns per unit of risk. Energy Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.30  in Energy Resources on December 29, 2024 and sell it today you would lose (0.10) from holding Energy Resources or give up 33.33% of portfolio value over 90 days.

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

Macquarie Bank Limited  vs.  Energy Resources

Macquarie Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Macquarie Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Energy Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Energy Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Bank and Energy Resources

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

The idea behind Macquarie Bank Limited and Energy Resources 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.