Correlation Between TMX Group and First National
Can any of the company-specific risk be diversified away by investing in both TMX Group and First National 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 First National 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 First National Financial, you can compare the effects of market volatilities on TMX Group and First National 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 First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMX Group and First National.
Diversification Opportunities for TMX Group and First National
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between TMX and First is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of TMX Group i.e., TMX Group and First National go up and down completely randomly.
Pair Corralation between TMX Group and First National
Given the investment horizon of 90 days TMX Group Limited is expected to under-perform the First National. But the stock apears to be less risky and, when comparing its historical volatility, TMX Group Limited is 1.88 times less risky than First National. The stock trades about -0.12 of its potential returns per unit of risk. The First National Financial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,485 in First National Financial on September 14, 2024 and sell it today you would earn a total of 60.00 from holding First National Financial or generate 4.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
TMX Group Limited vs. First National Financial
Performance |
| Timeline |
| TMX Group Limited |
| First National Financial |
TMX Group and First National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TMX Group and First National
The main advantage of trading using opposite TMX Group and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMX Group position performs unexpectedly, First National 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 First National will offset losses from the drop in First National's long position.| TMX Group vs. First National Financial | TMX Group vs. iA Financial | TMX Group vs. Algonquin Power Utilities | TMX Group vs. Olympia Financial Group |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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