Correlation Between Indutrade and Toromont Industries

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

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

Diversification Opportunities for Indutrade and Toromont Industries

0.46

Correlation Coefficient

Indutrade  Toromont Industries

Very weak diversification

The 3 months correlation between Indutrade and Toromont is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Indutrade AB and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Indutrade 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 Indutrade AB are associated (or correlated) with Toromont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toromont Industries has no effect on the direction of Indutrade i.e., Indutrade and Toromont Industries go up and down completely randomly.

Pair Corralation between Indutrade and Toromont Industries

Assuming the 90 days horizon Indutrade AB is expected to generate 1.19 times more return on investment than Toromont Industries. However, Indutrade is 1.19 times more volatile than Toromont Industries. It trades about 0.05 of its potential returns per unit of risk. Toromont Industries is currently generating about 0.02 per unit of risk. If you would invest  1,608  in Indutrade AB on October 15, 2024 and sell it today you would earn a total of  792.00  from holding Indutrade AB or generate 49.25% return on investment over 90 days.

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

Indutrade AB  vs.  Toromont Industries

Indutrade AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indutrade AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Indutrade and Toromont Industries

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

The idea behind Indutrade AB and Toromont Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.