Correlation Between Macquarie and Commonwealth Bank

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

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

Diversification Opportunities for Macquarie and Commonwealth Bank

0.1

Correlation Coefficient

Macquarie  Commonwealth Bank

Average diversification

The 3 months correlation between Macquarie and Commonwealth is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank 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 Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of Macquarie i.e., Macquarie and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Macquarie and Commonwealth Bank

Assuming the 90 days trading horizon Macquarie is expected to generate 1.64 times less return on investment than Commonwealth Bank. In addition to that, Macquarie is 4.41 times more volatile than Commonwealth Bank of. It trades about 0.01 of its total potential returns per unit of risk. Commonwealth Bank of is currently generating about 0.08 per unit of volatility. If you would invest  9,976  in Commonwealth Bank of on September 12, 2024 and sell it today you would earn a total of  127.00  from holding Commonwealth Bank of or generate 1.27% return on investment over 90 days.

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

Macquarie Group  vs.  Commonwealth Bank of

Macquarie Group

Risk-Adjusted Performance

0 of 100

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 comparatively stable technical and fundamental indicators, Macquarie is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Commonwealth Bank

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Commonwealth 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 Macquarie and Commonwealth Bank

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

The idea behind Macquarie Group and Commonwealth Bank of 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.