Correlation Between TMX GROUP and ASX

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

By analyzing existing cross correlation between TMX GROUP LTD and ASX Limited, you can compare the effects of market volatilities on TMX GROUP and ASX 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 ASX. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMX GROUP and ASX.

Diversification Opportunities for TMX GROUP and ASX

0.41

Correlation Coefficient

TMX GROUP  ASX

Very weak diversification

The 3 months correlation between TMX and ASX is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding TMX GROUP LTD and ASX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX Limited 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 LTD are associated (or correlated) with ASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX Limited has no effect on the direction of TMX GROUP i.e., TMX GROUP and ASX go up and down completely randomly.

Pair Corralation between TMX GROUP and ASX

Assuming the 90 days horizon TMX GROUP LTD is expected to generate 1.6 times more return on investment than ASX. However, TMX GROUP is 1.6 times more volatile than ASX Limited. It trades about 0.03 of its potential returns per unit of risk. ASX Limited is currently generating about 0.0 per unit of risk. If you would invest  2,762  in TMX GROUP LTD on September 27, 2024 and sell it today you would earn a total of  78.00  from holding TMX GROUP LTD or generate 2.82% return on investment over 90 days.

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

TMX GROUP LTD  vs.  ASX Limited

TMX GROUP LTD

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TMX GROUP LTD are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

ASX Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASX Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ASX 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 ASX

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

The idea behind TMX GROUP LTD and ASX Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.