Correlation Between TMX Group and Barloworld

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

Diversification Opportunities for TMX Group and Barloworld

-0.31

Correlation Coefficient

TMX Group  Barloworld

Very good diversification

The 3 months correlation between TMX and Barloworld is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR 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 Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of TMX Group i.e., TMX Group and Barloworld go up and down completely randomly.

Pair Corralation between TMX Group and Barloworld

Assuming the 90 days horizon TMX Group Limited is expected to generate 11.31 times more return on investment than Barloworld. However, TMX Group is 11.31 times more volatile than Barloworld Ltd ADR. It trades about 0.13 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.03 per unit of risk. If you would invest  10,155  in TMX Group Limited on September 21, 2024 and sell it today you would lose (7,104) from holding TMX Group Limited or give up 69.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.16%
Values	Daily Returns

TMX Group Limited  vs.  Barloworld Ltd ADR

TMX Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMX Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Barloworld ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TMX Group and Barloworld

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

The idea behind TMX Group Limited and Barloworld Ltd ADR 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..