Correlation Between Magellan Financial and Xero

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

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

Diversification Opportunities for Magellan Financial and Xero

0.37

Correlation Coefficient

Magellan Financial  Xero

Weak diversification

The 3 months correlation between Magellan and Xero is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Magellan Financial Group and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero and Magellan Financial 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 Magellan Financial 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 Magellan Financial i.e., Magellan Financial and Xero go up and down completely randomly.

Pair Corralation between Magellan Financial and Xero

Assuming the 90 days trading horizon Magellan Financial is expected to generate 1.46 times less return on investment than Xero. In addition to that, Magellan Financial is 1.27 times more volatile than Xero. It trades about 0.05 of its total potential returns per unit of risk. Xero is currently generating about 0.09 per unit of volatility. If you would invest  8,083  in Xero on October 27, 2024 and sell it today you would earn a total of  9,178  from holding Xero or generate 113.55% return on investment over 90 days.

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

Magellan Financial Group  vs.  Xero

Magellan Financial

Risk-Adjusted Performance

6 of 100

Modest

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

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 Magellan Financial and Xero

The main advantage of trading using opposite Magellan Financial and Xero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magellan Financial 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 Magellan Financial 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.