Correlation Between Diversified Royalty and Toromont Industries

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

By analyzing existing cross correlation between Diversified Royalty Corp and Toromont Industries, you can compare the effects of market volatilities on Diversified Royalty and Toromont Industries 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 Diversified Royalty with a short position of Toromont Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Royalty and Toromont Industries.

Diversification Opportunities for Diversified Royalty and Toromont Industries

-0.34

Correlation Coefficient

Diversified Royalty  Toromont Industries

Very good diversification

The 3 months correlation between Diversified and Toromont is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Royalty Corp and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Diversified Royalty 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 Diversified Royalty Corp are associated (or correlated) with Toromont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toromont Industries has no effect on the direction of Diversified Royalty i.e., Diversified Royalty and Toromont Industries go up and down completely randomly.

Pair Corralation between Diversified Royalty and Toromont Industries

Assuming the 90 days trading horizon Diversified Royalty Corp is expected to generate 0.61 times more return on investment than Toromont Industries. However, Diversified Royalty Corp is 1.63 times less risky than Toromont Industries. It trades about 0.1 of its potential returns per unit of risk. Toromont Industries is currently generating about -0.2 per unit of risk. If you would invest  286.00  in Diversified Royalty Corp on September 15, 2024 and sell it today you would earn a total of  12.00  from holding Diversified Royalty Corp or generate 4.2% return on investment over 90 days.

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

Diversified Royalty Corp  vs.  Toromont Industries

Diversified Royalty Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Royalty Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Diversified Royalty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Toromont Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Diversified Royalty and Toromont Industries

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

The idea behind Diversified Royalty Corp and Toromont Industries 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.