Correlation Between Macquarie and Xero

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

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

Diversification Opportunities for Macquarie and Xero

0.82

Correlation Coefficient

Macquarie  Xero

Very poor diversification

The 3 months correlation between Macquarie and Xero is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero and Macquarie 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 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 i.e., Macquarie and Xero go up and down completely randomly.

Pair Corralation between Macquarie and Xero

Assuming the 90 days trading horizon Macquarie Group is expected to under-perform the Xero. In addition to that, Macquarie is 1.04 times more volatile than Xero. It trades about -0.09 of its total potential returns per unit of risk. Xero is currently generating about -0.07 per unit of volatility. If you would invest  16,739  in Xero on December 30, 2024 and sell it today you would lose (1,153) from holding Xero or give up 6.89% of portfolio value over 90 days.

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

Macquarie Group  vs.  Xero

Macquarie Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Macquarie Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Xero

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xero has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Macquarie and Xero

The main advantage of trading using opposite Macquarie and Xero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macquarie 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 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.