Correlation Between TMX Group and London Stock

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

Diversification Opportunities for TMX Group and London Stock

0.01

Correlation Coefficient

TMX Group  London Stock

Significant diversification

The 3 months correlation between TMX and London is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of TMX Group i.e., TMX Group and London Stock go up and down completely randomly.

Pair Corralation between TMX Group and London Stock

Assuming the 90 days horizon TMX Group Limited is expected to under-perform the London Stock. But the pink sheet apears to be less risky and, when comparing its historical volatility, TMX Group Limited is 1.53 times less risky than London Stock. The pink sheet trades about -0.14 of its potential returns per unit of risk. The London Stock Exchange is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  14,075  in London Stock Exchange on September 25, 2024 and sell it today you would lose (143.00) from holding London Stock Exchange or give up 1.02% of portfolio value over 90 days.

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

TMX Group Limited  vs.  London Stock Exchange

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

London Stock Exchange

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, London Stock 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 London Stock

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

The idea behind TMX Group Limited and London Stock Exchange 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 Global Correlations module to find global opportunities by holding instruments from different markets.