Correlation Between Leons Furniture and TMX Group

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

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

Diversification Opportunities for Leons Furniture and TMX Group

-0.73

Correlation Coefficient

Leons Furniture  TMX Group

Pay attention - limited upside

The 3 months correlation between Leons and TMX is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Leons Furniture Limited 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 Leons Furniture 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 Leons Furniture Limited 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 Leons Furniture i.e., Leons Furniture and TMX Group go up and down completely randomly.

Pair Corralation between Leons Furniture and TMX Group

Assuming the 90 days trading horizon Leons Furniture Limited is expected to under-perform the TMX Group. In addition to that, Leons Furniture is 1.47 times more volatile than TMX Group Limited. It trades about -0.08 of its total potential returns per unit of risk. TMX Group Limited is currently generating about 0.05 per unit of volatility. If you would invest  4,402  in TMX Group Limited on September 25, 2024 and sell it today you would earn a total of  35.00  from holding TMX Group Limited or generate 0.8% return on investment over 90 days.

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

Leons Furniture Limited  vs.  TMX Group Limited

Leons Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

TMX Group Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TMX Group is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Leons Furniture and TMX Group

The main advantage of trading using opposite Leons Furniture and TMX Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leons Furniture 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 Leons Furniture Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.