Correlation Between TSX Industrials and Pasofino Gold

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Can any of the company-specific risk be diversified away by investing in both TSX Industrials and Pasofino Gold 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 TSX Industrials and Pasofino Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TSX Industrials Capped and Pasofino Gold Limited, you can compare the effects of market volatilities on TSX Industrials and Pasofino Gold 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 TSX Industrials with a short position of Pasofino Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of TSX Industrials and Pasofino Gold.

Diversification Opportunities for TSX Industrials and Pasofino Gold

0.17
  Correlation Coefficient

Average diversification

The 3 months correlation between TSX and Pasofino is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding TSX Industrials Capped and Pasofino Gold Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pasofino Gold Limited and TSX Industrials 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 TSX Industrials Capped are associated (or correlated) with Pasofino Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pasofino Gold Limited has no effect on the direction of TSX Industrials i.e., TSX Industrials and Pasofino Gold go up and down completely randomly.
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Pair Corralation between TSX Industrials and Pasofino Gold

Assuming the 90 days trading horizon TSX Industrials is expected to generate 3.81 times less return on investment than Pasofino Gold. But when comparing it to its historical volatility, TSX Industrials Capped is 8.37 times less risky than Pasofino Gold. It trades about 0.07 of its potential returns per unit of risk. Pasofino Gold Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  40.00  in Pasofino Gold Limited on December 5, 2023 and sell it today you would earn a total of  2.00  from holding Pasofino Gold Limited or generate 5.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

TSX Industrials Capped  vs.  Pasofino Gold Limited

 Performance 
       Timeline  

TSX Industrials and Pasofino Gold Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with TSX Industrials and Pasofino Gold

The main advantage of trading using opposite TSX Industrials and Pasofino Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TSX Industrials position performs unexpectedly, Pasofino Gold 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 Pasofino Gold will offset losses from the drop in Pasofino Gold's long position.
The idea behind TSX Industrials Capped and Pasofino Gold Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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