Correlation Between Rocky Mountain and TMX Group

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

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

Diversification Opportunities for Rocky Mountain and TMX Group

-0.51

Correlation Coefficient

Rocky Mountain  TMX Group

Excellent diversification

The 3 months correlation between Rocky and TMX is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor 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 Rocky Mountain 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 Rocky Mountain Liquor 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 Rocky Mountain i.e., Rocky Mountain and TMX Group go up and down completely randomly.

Pair Corralation between Rocky Mountain and TMX Group

Assuming the 90 days horizon Rocky Mountain Liquor is expected to under-perform the TMX Group. In addition to that, Rocky Mountain is 6.8 times more volatile than TMX Group Limited. It trades about -0.13 of its total potential returns per unit of risk. TMX Group Limited is currently generating about 0.11 per unit of volatility. If you would invest  4,370  in TMX Group Limited on September 27, 2024 and sell it today you would earn a total of  78.00  from holding TMX Group Limited or generate 1.78% return on investment over 90 days.

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

Rocky Mountain Liquor  vs.  TMX Group Limited

Rocky Mountain Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Mountain Liquor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

TMX Group Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 8 (%) 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 Rocky Mountain and TMX Group

The main advantage of trading using opposite Rocky Mountain and TMX Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocky Mountain 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 Rocky Mountain Liquor 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.