Correlation Between TMX Group and Intercontinental

Can any of the company-specific risk be diversified away by investing in both TMX Group and Intercontinental 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 Intercontinental 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 Intercontinental Exchange, you can compare the effects of market volatilities on TMX Group and Intercontinental 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 Intercontinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMX Group and Intercontinental.

Diversification Opportunities for TMX Group and Intercontinental

0.79

Correlation Coefficient

TMX Group  Intercontinental

Poor diversification

The 3 months correlation between TMX and Intercontinental is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and Intercontinental Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intercontinental Exchange 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 Intercontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intercontinental Exchange has no effect on the direction of TMX Group i.e., TMX Group and Intercontinental go up and down completely randomly.

Pair Corralation between TMX Group and Intercontinental

Assuming the 90 days horizon TMX Group Limited is expected to generate 1.74 times more return on investment than Intercontinental. However, TMX Group is 1.74 times more volatile than Intercontinental Exchange. It trades about 0.15 of its potential returns per unit of risk. Intercontinental Exchange is currently generating about 0.23 per unit of risk. If you would invest  3,049  in TMX Group Limited on December 23, 2024 and sell it today you would earn a total of  575.00  from holding TMX Group Limited or generate 18.86% return on investment over 90 days.

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

TMX Group Limited  vs.  Intercontinental Exchange

TMX Group Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, TMX Group reported solid returns over the last few months and may actually be approaching a breakup point.

Intercontinental Exchange

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Intercontinental Exchange are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Intercontinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TMX Group and Intercontinental

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

The idea behind TMX Group Limited and Intercontinental Exchange 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..