Correlation Between Prysmian SpA and Toromont Industries

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

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

Diversification Opportunities for Prysmian SpA and Toromont Industries

0.58

Correlation Coefficient

Prysmian SpA  Toromont Industries

Very weak diversification

The 3 months correlation between Prysmian and Toromont is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Prysmian SpA and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Prysmian SpA 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 Prysmian SpA 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 Prysmian SpA i.e., Prysmian SpA and Toromont Industries go up and down completely randomly.

Pair Corralation between Prysmian SpA and Toromont Industries

Assuming the 90 days horizon Prysmian SpA is expected to generate 0.58 times more return on investment than Toromont Industries. However, Prysmian SpA is 1.73 times less risky than Toromont Industries. It trades about -0.02 of its potential returns per unit of risk. Toromont Industries is currently generating about -0.02 per unit of risk. If you would invest  6,859  in Prysmian SpA on September 12, 2024 and sell it today you would lose (406.00) from holding Prysmian SpA or give up 5.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Prysmian SpA  vs.  Toromont Industries

Prysmian SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prysmian SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Prysmian SpA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the 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 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 Prysmian SpA and Toromont Industries

The main advantage of trading using opposite Prysmian SpA and Toromont Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prysmian SpA 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 Prysmian SpA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.