Correlation Between Macquarie Group and EP Financial

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

Diversification Opportunities for Macquarie Group and EP Financial

0.41

Correlation Coefficient

Macquarie Group  EP Financial

Very weak diversification

The 3 months correlation between Macquarie and EP1 is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Macquarie Group Ltd and EP Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EP Financial Group 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 EP Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EP Financial Group has no effect on the direction of Macquarie Group i.e., Macquarie Group and EP Financial go up and down completely randomly.

Pair Corralation between Macquarie Group and EP Financial

Assuming the 90 days trading horizon Macquarie Group is expected to generate 4.56 times less return on investment than EP Financial. But when comparing it to its historical volatility, Macquarie Group Ltd is 5.12 times less risky than EP Financial. It trades about 0.05 of its potential returns per unit of risk. EP Financial Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  51.00  in EP Financial Group on September 25, 2024 and sell it today you would earn a total of  1.00  from holding EP Financial Group or generate 1.96% return on investment over 90 days.

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

Macquarie Group Ltd  vs.  EP Financial Group

Macquarie Group

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Group Ltd are ranked lower than 4 (%) 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.

EP Financial Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EP Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, EP Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Macquarie Group and EP Financial

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

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