Correlation Between Toromont Industries and WESCO International

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

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

Diversification Opportunities for Toromont Industries and WESCO International

-0.81

Correlation Coefficient

Toromont Industries  WESCO International

Pay attention - limited upside

The 3 months correlation between Toromont and WESCO is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International and Toromont Industries 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 Toromont Industries are associated (or correlated) with WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Toromont Industries i.e., Toromont Industries and WESCO International go up and down completely randomly.

Pair Corralation between Toromont Industries and WESCO International

Assuming the 90 days horizon Toromont Industries is expected to generate 3.12 times more return on investment than WESCO International. However, Toromont Industries is 3.12 times more volatile than WESCO International. It trades about -0.02 of its potential returns per unit of risk. WESCO International is currently generating about -0.51 per unit of risk. If you would invest  7,845  in Toromont Industries on September 27, 2024 and sell it today you would lose (295.00) from holding Toromont Industries or give up 3.76% of portfolio value over 90 days.

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

Toromont Industries  vs.  WESCO International

Toromont Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

WESCO International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WESCO International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toromont Industries and WESCO International

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

The idea behind Toromont Industries and WESCO International 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.