Correlation Between MSCI and TMX Group

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

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

Diversification Opportunities for MSCI and TMX Group

-0.71

Correlation Coefficient

MSCI  TMX Group

Pay attention - limited upside

The 3 months correlation between MSCI and TMX is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding MSCI Inc 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 MSCI 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 MSCI Inc 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 MSCI i.e., MSCI and TMX Group go up and down completely randomly.

Pair Corralation between MSCI and TMX Group

Given the investment horizon of 90 days MSCI Inc is expected to under-perform the TMX Group. But the stock apears to be less risky and, when comparing its historical volatility, MSCI Inc is 1.3 times less risky than TMX Group. The stock trades about -0.05 of its potential returns per unit of risk. The TMX Group Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,036  in TMX Group Limited on December 18, 2024 and sell it today you would earn a total of  498.00  from holding TMX Group Limited or generate 16.4% return on investment over 90 days.

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

MSCI Inc  vs.  TMX Group Limited

MSCI Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSCI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, MSCI is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

TMX Group Limited

Risk-Adjusted Performance

Good

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

The main advantage of trading using opposite MSCI and TMX Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSCI 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 MSCI Inc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.