Correlation Between Euronext and TMX Group

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

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

Diversification Opportunities for Euronext and TMX Group

0.75

Correlation Coefficient

Euronext  TMX Group

Poor diversification

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

Pair Corralation between Euronext and TMX Group

Assuming the 90 days horizon Euronext NV is expected to generate 0.76 times more return on investment than TMX Group. However, Euronext NV is 1.32 times less risky than TMX Group. It trades about 0.21 of its potential returns per unit of risk. TMX Group Limited is currently generating about 0.14 per unit of risk. If you would invest  11,410  in Euronext NV on December 20, 2024 and sell it today you would earn a total of  2,221  from holding Euronext NV or generate 19.47% return on investment over 90 days.

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

Euronext NV  vs.  TMX Group Limited

Euronext NV

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Euronext reported solid returns over the last few months and may actually be approaching a breakup point.

TMX Group Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, TMX Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Euronext and TMX Group

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

The idea behind Euronext NV and TMX Group Limited 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.