Correlation Between Toromont Industries and North West

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

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

Diversification Opportunities for Toromont Industries and North West

-0.4

Correlation Coefficient

Toromont Industries  North West

Very good diversification

The 3 months correlation between Toromont and North is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and North West in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North West and Toromont Industries 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 Toromont Industries are associated (or correlated) with North West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North West has no effect on the direction of Toromont Industries i.e., Toromont Industries and North West go up and down completely randomly.

Pair Corralation between Toromont Industries and North West

Assuming the 90 days trading horizon Toromont Industries is expected to generate 2.58 times less return on investment than North West. But when comparing it to its historical volatility, Toromont Industries is 1.04 times less risky than North West. It trades about 0.0 of its potential returns per unit of risk. North West is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,890  in North West on December 30, 2024 and sell it today you would earn a total of  20.00  from holding North West or generate 0.41% return on investment over 90 days.

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

Toromont Industries  vs.  North West

Toromont Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Toromont Industries is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

North West

Risk-Adjusted Performance

Very Weak

Over the last 90 days North West has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, North West is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Toromont Industries and North West

The main advantage of trading using opposite Toromont Industries and North West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toromont Industries position performs unexpectedly, North West 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 North West will offset losses from the drop in North West's long position.

The idea behind Toromont Industries and North West 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.