Correlation Between Macquarie Group and Daiwa House

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

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

Diversification Opportunities for Macquarie Group and Daiwa House

-0.15

Correlation Coefficient

Macquarie Group  Daiwa House

Good diversification

The 3 months correlation between Macquarie and Daiwa is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group Ltd and Daiwa House Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiwa House Industry and Macquarie Group 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 Group Ltd are associated (or correlated) with Daiwa House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiwa House Industry has no effect on the direction of Macquarie Group i.e., Macquarie Group and Daiwa House go up and down completely randomly.

Pair Corralation between Macquarie Group and Daiwa House

Assuming the 90 days horizon Macquarie Group Ltd is expected to under-perform the Daiwa House. In addition to that, Macquarie Group is 1.3 times more volatile than Daiwa House Industry. It trades about -0.26 of its total potential returns per unit of risk. Daiwa House Industry is currently generating about -0.22 per unit of volatility. If you would invest  3,133  in Daiwa House Industry on October 10, 2024 and sell it today you would lose (134.00) from holding Daiwa House Industry or give up 4.28% of portfolio value over 90 days.

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

Macquarie Group Ltd  vs.  Daiwa House Industry

Macquarie Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Macquarie Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Daiwa House Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daiwa House Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Daiwa House is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Macquarie Group and Daiwa House

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

The idea behind Macquarie Group Ltd and Daiwa House Industry 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.