Correlation Between Aristocrat Leisure and Macquarie Bank

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

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

Diversification Opportunities for Aristocrat Leisure and Macquarie Bank

0.5

Correlation Coefficient

Aristocrat Leisure  Macquarie Bank

Very weak diversification

The 3 months correlation between Aristocrat and Macquarie is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Macquarie Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Bank and Aristocrat Leisure 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 Aristocrat Leisure are associated (or correlated) with Macquarie Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Bank has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Macquarie Bank go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Macquarie Bank

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 2.03 times more return on investment than Macquarie Bank. However, Aristocrat Leisure is 2.03 times more volatile than Macquarie Bank Limited. It trades about 0.08 of its potential returns per unit of risk. Macquarie Bank Limited is currently generating about 0.08 per unit of risk. If you would invest  6,673  in Aristocrat Leisure on September 24, 2024 and sell it today you would earn a total of  127.00  from holding Aristocrat Leisure or generate 1.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Aristocrat Leisure  vs.  Macquarie Bank Limited

Aristocrat Leisure

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Macquarie Bank

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Aristocrat Leisure and Macquarie Bank

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

The idea behind Aristocrat Leisure and Macquarie Bank Limited 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.