Correlation Between TMX Group and First National

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

Diversification Opportunities for TMX Group and First National

0.2

Correlation Coefficient

TMX Group  First National

Modest diversification

The 3 months correlation between TMX and First is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of TMX Group i.e., TMX Group and First National go up and down completely randomly.

Pair Corralation between TMX Group and First National

Given the investment horizon of 90 days TMX Group Limited is expected to generate 1.47 times more return on investment than First National. However, TMX Group is 1.47 times more volatile than First National Financial. It trades about 0.19 of its potential returns per unit of risk. First National Financial is currently generating about -0.02 per unit of risk. If you would invest  4,426  in TMX Group Limited on December 27, 2024 and sell it today you would earn a total of  768.00  from holding TMX Group Limited or generate 17.35% return on investment over 90 days.

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

TMX Group Limited  vs.  First National Financial

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 14 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, TMX Group displayed solid returns over the last few months and may actually be approaching a breakup point.

First National Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with TMX Group and First National

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

The idea behind TMX Group Limited and First National Financial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.