Correlation Between National Australia and Macquarie

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

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

Diversification Opportunities for National Australia and Macquarie

0.44

Correlation Coefficient

National Australia  Macquarie

Very weak diversification

The 3 months correlation between National and Macquarie is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Macquarie Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Group and National Australia 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 National Australia Bank are associated (or correlated) with Macquarie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Group has no effect on the direction of National Australia i.e., National Australia and Macquarie go up and down completely randomly.

Pair Corralation between National Australia and Macquarie

Assuming the 90 days trading horizon National Australia is expected to generate 1.11 times less return on investment than Macquarie. In addition to that, National Australia is 1.02 times more volatile than Macquarie Group. It trades about 0.01 of its total potential returns per unit of risk. Macquarie Group is currently generating about 0.01 per unit of volatility. If you would invest  22,457  in Macquarie Group on September 13, 2024 and sell it today you would earn a total of  100.00  from holding Macquarie Group or generate 0.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

National Australia Bank  vs.  Macquarie Group

National Australia Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Australia Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, National Australia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Macquarie Group

Risk-Adjusted Performance

0 of 100

Very 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.

Pair Trading with National Australia and Macquarie

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

The idea behind National Australia Bank and Macquarie 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.