Correlation Between Toro and SM Investments
Can any of the company-specific risk be diversified away by investing in both Toro and SM Investments 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 Toro and SM Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toro Co and SM Investments, you can compare the effects of market volatilities on Toro and SM Investments 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 Toro with a short position of SM Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toro and SM Investments.
Diversification Opportunities for Toro and SM Investments
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Toro and SVTMF is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Toro 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 Toro Co are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Toro i.e., Toro and SM Investments go up and down completely randomly.
Pair Corralation between Toro and SM Investments
Considering the 90-day investment horizon Toro Co is expected to generate 0.98 times more return on investment than SM Investments. However, Toro Co is 1.02 times less risky than SM Investments. It trades about 0.02 of its potential returns per unit of risk. SM Investments is currently generating about 0.02 per unit of risk. If you would invest 8,271 in Toro Co on September 6, 2024 and sell it today you would earn a total of 392.00 from holding Toro Co or generate 4.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 65.06% |
| Values | Daily Returns |
Toro Co vs. SM Investments
Performance |
| Timeline |
| Toro |
| SM Investments |
Toro and SM Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toro and SM Investments
The main advantage of trading using opposite Toro and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toro position performs unexpectedly, SM Investments 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 SM Investments will offset losses from the drop in SM Investments' long position.The idea behind Toro Co and SM Investments 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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