Correlation Between ASX and TMX GROUP

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

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

Diversification Opportunities for ASX and TMX GROUP

0.41

Correlation Coefficient

ASX  TMX GROUP

Very weak diversification

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

Pair Corralation between ASX and TMX GROUP

Assuming the 90 days horizon ASX is expected to generate 95.29 times less return on investment than TMX GROUP. But when comparing it to its historical volatility, ASX Limited is 1.6 times less risky than TMX GROUP. It trades about 0.0 of its potential returns per unit of risk. TMX GROUP LTD is currently generating about 0.03 of returns per unit of risk over similar time horizon. 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

ASX Limited  vs.  TMX GROUP LTD

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.

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.

Pair Trading with ASX and TMX GROUP

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

The idea behind ASX Limited and TMX GROUP LTD 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.