Correlation Between Toronto Dominion and First Capital

Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and First Capital 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 Toronto Dominion and First Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Toronto Dominion Bank and First Capital Real, you can compare the effects of market volatilities on Toronto Dominion and First Capital 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 Toronto Dominion with a short position of First Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and First Capital.

Diversification Opportunities for Toronto Dominion and First Capital

-0.8

Correlation Coefficient

Toronto Dominion  First Capital

Pay attention - limited upside

The 3 months correlation between Toronto and First is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and First Capital Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Real and Toronto Dominion 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 Toronto Dominion Bank are associated (or correlated) with First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Real has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and First Capital go up and down completely randomly.

Pair Corralation between Toronto Dominion and First Capital

Assuming the 90 days trading horizon Toronto Dominion Bank is expected to generate 0.55 times more return on investment than First Capital. However, Toronto Dominion Bank is 1.81 times less risky than First Capital. It trades about 0.08 of its potential returns per unit of risk. First Capital Real is currently generating about -0.1 per unit of risk. If you would invest  2,381  in Toronto Dominion Bank on September 13, 2024 and sell it today you would earn a total of  51.00  from holding Toronto Dominion Bank or generate 2.14% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  First Capital Real

Toronto Dominion Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Toronto Dominion is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Capital Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Toronto Dominion and First Capital

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

The idea behind Toronto Dominion Bank and First Capital Real 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.