Correlation Between Tomra Systems and Toromont Industries

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

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

Diversification Opportunities for Tomra Systems and Toromont Industries

0.4

Correlation Coefficient

Tomra Systems  Toromont Industries

Very weak diversification

The 3 months correlation between Tomra and Toromont is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tomra Systems ASA and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Tomra Systems 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 Tomra Systems ASA 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 Tomra Systems i.e., Tomra Systems and Toromont Industries go up and down completely randomly.

Pair Corralation between Tomra Systems and Toromont Industries

Assuming the 90 days horizon Tomra Systems ASA is expected to generate 3.06 times more return on investment than Toromont Industries. However, Tomra Systems is 3.06 times more volatile than Toromont Industries. It trades about 0.01 of its potential returns per unit of risk. Toromont Industries is currently generating about -0.36 per unit of risk. If you would invest  1,340  in Tomra Systems ASA on September 13, 2024 and sell it today you would earn a total of  0.00  from holding Tomra Systems ASA or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	77.27%
Values	Daily Returns

Tomra Systems ASA  vs.  Toromont Industries

Tomra Systems ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tomra Systems ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Tomra Systems and Toromont Industries

The main advantage of trading using opposite Tomra Systems and Toromont Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tomra Systems 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 Tomra Systems ASA 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 Transaction History module to view history of all your transactions and understand their impact on performance.