Correlation Between TMX Group and Euronext

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

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

Diversification Opportunities for TMX Group and Euronext

-0.25

Correlation Coefficient

TMX Group  Euronext

Very good diversification

The 3 months correlation between TMX and Euronext is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and Euronext NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euronext NV and TMX Group 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 TMX Group Limited are associated (or correlated) with Euronext. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euronext NV has no effect on the direction of TMX Group i.e., TMX Group and Euronext go up and down completely randomly.

Pair Corralation between TMX Group and Euronext

Assuming the 90 days horizon TMX Group Limited is expected to generate 1.05 times more return on investment than Euronext. However, TMX Group is 1.05 times more volatile than Euronext NV. It trades about 0.07 of its potential returns per unit of risk. Euronext NV is currently generating about 0.04 per unit of risk. If you would invest  3,070  in TMX Group Limited on October 25, 2024 and sell it today you would earn a total of  43.00  from holding TMX Group Limited or generate 1.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

TMX Group Limited  vs.  Euronext NV

TMX Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMX Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TMX Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Euronext NV

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Euronext is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TMX Group and Euronext

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

The idea behind TMX Group Limited and Euronext NV 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.