Correlation Between Thomson Reuters and Group 1

Can any of the company-specific risk be diversified away by investing in both Thomson Reuters and Group 1 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 Thomson Reuters and Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thomson Reuters Corp and Group 1 Automotive, you can compare the effects of market volatilities on Thomson Reuters and Group 1 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 Thomson Reuters with a short position of Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thomson Reuters and Group 1.

Diversification Opportunities for Thomson Reuters and Group 1

0.31

Correlation Coefficient

Thomson Reuters  Group 1

Weak diversification

The 3 months correlation between Thomson and Group is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Thomson Reuters Corp and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive and Thomson Reuters 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 Thomson Reuters Corp are associated (or correlated) with Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of Thomson Reuters i.e., Thomson Reuters and Group 1 go up and down completely randomly.

Pair Corralation between Thomson Reuters and Group 1

Considering the 90-day investment horizon Thomson Reuters is expected to generate 2.39 times less return on investment than Group 1. But when comparing it to its historical volatility, Thomson Reuters Corp is 1.42 times less risky than Group 1. It trades about 0.14 of its potential returns per unit of risk. Group 1 Automotive is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  26,439  in Group 1 Automotive on February 15, 2024 and sell it today you would earn a total of  5,626  from holding Group 1 Automotive or generate 21.28% return on investment over 90 days.

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

Thomson Reuters Corp  vs.  Group 1 Automotive

Thomson Reuters Corp

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thomson Reuters Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Thomson Reuters may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Group 1 Automotive

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Group 1 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thomson Reuters and Group 1

The main advantage of trading using opposite Thomson Reuters and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thomson Reuters position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind Thomson Reuters Corp and Group 1 Automotive 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..