Correlation Between Toromont Industries and BMTC

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

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

Diversification Opportunities for Toromont Industries and BMTC

-0.23

Correlation Coefficient

Toromont Industries  BMTC

Very good diversification

The 3 months correlation between Toromont and BMTC is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and BMTC Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMTC Group and Toromont Industries 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 Toromont Industries are associated (or correlated) with BMTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMTC Group has no effect on the direction of Toromont Industries i.e., Toromont Industries and BMTC go up and down completely randomly.

Pair Corralation between Toromont Industries and BMTC

Assuming the 90 days trading horizon Toromont Industries is expected to under-perform the BMTC. But the stock apears to be less risky and, when comparing its historical volatility, Toromont Industries is 1.4 times less risky than BMTC. The stock trades about -0.17 of its potential returns per unit of risk. The BMTC Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,298  in BMTC Group on September 18, 2024 and sell it today you would lose (29.00) from holding BMTC Group or give up 2.23% of portfolio value over 90 days.

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

Toromont Industries  vs.  BMTC Group

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 latest unfluctuating performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

BMTC Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Toromont Industries and BMTC

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

The idea behind Toromont Industries and BMTC Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.