Correlation Between Rea and Macquarie Technology

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

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

Diversification Opportunities for Rea and Macquarie Technology

0.75

Correlation Coefficient

Rea  Macquarie Technology

Poor diversification

The 3 months correlation between Rea and Macquarie is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Macquarie Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Technology and Rea 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 Rea Group are associated (or correlated) with Macquarie Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macquarie Technology has no effect on the direction of Rea i.e., Rea and Macquarie Technology go up and down completely randomly.

Pair Corralation between Rea and Macquarie Technology

Assuming the 90 days trading horizon Rea Group is expected to generate 1.2 times more return on investment than Macquarie Technology. However, Rea is 1.2 times more volatile than Macquarie Technology Group. It trades about 0.31 of its potential returns per unit of risk. Macquarie Technology Group is currently generating about 0.12 per unit of risk. If you would invest  23,305  in Rea Group on September 4, 2024 and sell it today you would earn a total of  2,062  from holding Rea Group or generate 8.85% return on investment over 90 days.

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

Rea Group  vs.  Macquarie Technology Group

Rea Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rea unveiled solid returns over the last few months and may actually be approaching a breakup point.

Macquarie Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Technology Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Macquarie Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rea and Macquarie Technology

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

The idea behind Rea Group and Macquarie Technology 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.