Correlation Between Toromont Industries and Tomra Systems

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

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

Diversification Opportunities for Toromont Industries and Tomra Systems

0.57

Correlation Coefficient

Toromont Industries  Tomra Systems

Very weak diversification

The 3 months correlation between Toromont and Tomra is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and Tomra Systems ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tomra Systems ASA 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 Tomra Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tomra Systems ASA has no effect on the direction of Toromont Industries i.e., Toromont Industries and Tomra Systems go up and down completely randomly.

Pair Corralation between Toromont Industries and Tomra Systems

Assuming the 90 days horizon Toromont Industries is expected to generate 2.19 times more return on investment than Tomra Systems. However, Toromont Industries is 2.19 times more volatile than Tomra Systems ASA. It trades about -0.01 of its potential returns per unit of risk. Tomra Systems ASA is currently generating about -0.03 per unit of risk. If you would invest  8,959  in Toromont Industries on September 5, 2024 and sell it today you would lose (934.00) from holding Toromont Industries or give up 10.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Toromont Industries  vs.  Tomra Systems ASA

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.

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. Despite nearly stable basic indicators, Tomra Systems is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Toromont Industries and Tomra Systems

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

The idea behind Toromont Industries and Tomra Systems ASA 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.