Correlation Between Macquarie Group and K2 Asset

Can any of the company-specific risk be diversified away by investing in both Macquarie Group and K2 Asset 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 K2 Asset 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 K2 Asset Management, you can compare the effects of market volatilities on Macquarie Group and K2 Asset 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 K2 Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Macquarie Group and K2 Asset.

Diversification Opportunities for Macquarie Group and K2 Asset

0.67

Correlation Coefficient

Macquarie Group  K2 Asset

Poor diversification

The 3 months correlation between Macquarie and KAM is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group Ltd and K2 Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K2 Asset Management 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 K2 Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K2 Asset Management has no effect on the direction of Macquarie Group i.e., Macquarie Group and K2 Asset go up and down completely randomly.

Pair Corralation between Macquarie Group and K2 Asset

Assuming the 90 days trading horizon Macquarie Group is expected to generate 100.87 times less return on investment than K2 Asset. But when comparing it to its historical volatility, Macquarie Group Ltd is 7.57 times less risky than K2 Asset. It trades about 0.02 of its potential returns per unit of risk. K2 Asset Management is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  5.00  in K2 Asset Management on September 23, 2024 and sell it today you would earn a total of  2.50  from holding K2 Asset Management or generate 50.0% return on investment over 90 days.

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

Macquarie Group Ltd  vs.  K2 Asset Management

Macquarie Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Group Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Macquarie Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

K2 Asset Management

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in K2 Asset Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, K2 Asset unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Group and K2 Asset

The main advantage of trading using opposite Macquarie Group and K2 Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macquarie Group position performs unexpectedly, K2 Asset 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 K2 Asset will offset losses from the drop in K2 Asset's long position.

The idea behind Macquarie Group Ltd and K2 Asset Management 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.