Correlation Between Toro and SM Investments

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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

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Toro and SVTMF is -0.15. 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 is expected to generate 5.42 times less return on investment than SM Investments. But when comparing it to its historical volatility, Toro Co is 1.73 times less risky than SM Investments. It trades about 0.04 of its potential returns per unit of risk. SM Investments is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,420  in SM Investments on September 8, 2024 and sell it today you would earn a total of  180.00  from holding SM Investments or generate 12.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Toro Co  vs.  SM Investments

 Performance 
       Timeline  
Toro 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Toro Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
SM Investments 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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