Correlation Between Toromont Industries and Russel Metals

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

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

Diversification Opportunities for Toromont Industries and Russel Metals

0.51

Correlation Coefficient

Toromont Industries  Russel Metals

Very weak diversification

The 3 months correlation between Toromont and Russel is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals 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 Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of Toromont Industries i.e., Toromont Industries and Russel Metals go up and down completely randomly.

Pair Corralation between Toromont Industries and Russel Metals

Assuming the 90 days trading horizon Toromont Industries is expected to generate 0.91 times more return on investment than Russel Metals. However, Toromont Industries is 1.1 times less risky than Russel Metals. It trades about 0.0 of its potential returns per unit of risk. Russel Metals is currently generating about -0.04 per unit of risk. If you would invest  11,267  in Toromont Industries on December 30, 2024 and sell it today you would lose (16.00) from holding Toromont Industries or give up 0.14% of portfolio value over 90 days.

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

Toromont Industries  vs.  Russel Metals

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.

Russel Metals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Toromont Industries and Russel Metals

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

The idea behind Toromont Industries and Russel Metals 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.