Correlation Between TMX Group and Sprott

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

Diversification Opportunities for TMX Group and Sprott

0.78

Correlation Coefficient

TMX Group  Sprott

Poor diversification

The 3 months correlation between TMX and Sprott is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding TMX Group Limited and Sprott Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Inc 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 Sprott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Inc has no effect on the direction of TMX Group i.e., TMX Group and Sprott go up and down completely randomly.

Pair Corralation between TMX Group and Sprott

Given the investment horizon of 90 days TMX Group is expected to generate 4.99 times less return on investment than Sprott. But when comparing it to its historical volatility, TMX Group Limited is 1.9 times less risky than Sprott. It trades about 0.1 of its potential returns per unit of risk. Sprott Inc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  4,998  in Sprott Inc on January 28, 2024 and sell it today you would earn a total of  476.00  from holding Sprott Inc or generate 9.52% return on investment over 90 days.

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

TMX Group Limited  vs.  Sprott Inc

TMX Group Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TMX Group Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, TMX Group may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Sprott Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal forward indicators, Sprott displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TMX Group and Sprott

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

The idea behind TMX Group Limited and Sprott Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.