Correlation Between Macquarie Group and Karoon Energy

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

Diversification Opportunities for Macquarie Group and Karoon Energy

0.05

Correlation Coefficient

Macquarie Group  Karoon Energy

Significant diversification

The 3 months correlation between Macquarie and Karoon is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group Ltd and Karoon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karoon Energy 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 Karoon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karoon Energy has no effect on the direction of Macquarie Group i.e., Macquarie Group and Karoon Energy go up and down completely randomly.

Pair Corralation between Macquarie Group and Karoon Energy

Assuming the 90 days trading horizon Macquarie Group is expected to generate 136.92 times less return on investment than Karoon Energy. But when comparing it to its historical volatility, Macquarie Group Ltd is 9.52 times less risky than Karoon Energy. It trades about 0.01 of its potential returns per unit of risk. Karoon Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  131.00  in Karoon Energy on December 5, 2024 and sell it today you would earn a total of  26.00  from holding Karoon Energy or generate 19.85% return on investment over 90 days.

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

Macquarie Group Ltd  vs.  Karoon Energy

Macquarie Group

Risk-Adjusted Performance

Very Weak

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

Karoon Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Karoon Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Karoon Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Macquarie Group and Karoon Energy

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

The idea behind Macquarie Group Ltd and Karoon Energy 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.