Correlation Between Novozymes A/S and Toromont Industries

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

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

Diversification Opportunities for Novozymes A/S and Toromont Industries

0.06

Correlation Coefficient

Novozymes A/S  Toromont Industries

Significant diversification

The 3 months correlation between Novozymes and Toromont is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Novozymes AS B and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Novozymes A/S 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 Novozymes AS B 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 Novozymes A/S i.e., Novozymes A/S and Toromont Industries go up and down completely randomly.

Pair Corralation between Novozymes A/S and Toromont Industries

Assuming the 90 days horizon Novozymes AS B is expected to generate 2.2 times more return on investment than Toromont Industries. However, Novozymes A/S is 2.2 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 0.03 per unit of risk. If you would invest  5,551  in Novozymes AS B on December 30, 2024 and sell it today you would earn a total of  316.00  from holding Novozymes AS B or generate 5.69% return on investment over 90 days.

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

Novozymes AS B  vs.  Toromont Industries

Novozymes AS B

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Novozymes AS B are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Novozymes A/S may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Toromont Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toromont Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toromont Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Novozymes A/S and Toromont Industries

The main advantage of trading using opposite Novozymes A/S and Toromont Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novozymes A/S 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 Novozymes AS B 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.