Correlation Between Rea and Macquarie

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

Diversification Opportunities for Rea and Macquarie

0.34

Correlation Coefficient

Rea  Macquarie

Weak diversification

The 3 months correlation between Rea and Macquarie is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Macquarie Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macquarie Group 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. 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 Rea i.e., Rea and Macquarie go up and down completely randomly.

Pair Corralation between Rea and Macquarie

Assuming the 90 days trading horizon Rea Group is expected to generate 1.34 times more return on investment than Macquarie. However, Rea is 1.34 times more volatile than Macquarie Group. It trades about 0.14 of its potential returns per unit of risk. Macquarie Group is currently generating about 0.12 per unit of risk. If you would invest  21,900  in Rea Group on August 30, 2024 and sell it today you would earn a total of  3,188  from holding Rea Group or generate 14.56% return on investment over 90 days.

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

Rea Group  vs.  Macquarie Group

Rea Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 11 (%) 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 Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Macquarie Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Macquarie may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Rea and Macquarie

The main advantage of trading using opposite Rea and Macquarie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rea 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 Rea Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.