Correlation Between Toronto Dominion and European Residential

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

Diversification Opportunities for Toronto Dominion and European Residential

-0.46

Correlation Coefficient

Toronto Dominion  European Residential

Very good diversification

The 3 months correlation between Toronto and European is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential 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 European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and European Residential go up and down completely randomly.

Pair Corralation between Toronto Dominion and European Residential

Assuming the 90 days horizon Toronto Dominion Bank is expected to under-perform the European Residential. But the stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank is 1.77 times less risky than European Residential. The stock trades about -0.11 of its potential returns per unit of risk. The European Residential Real is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  325.00  in European Residential Real on September 30, 2024 and sell it today you would earn a total of  57.00  from holding European Residential Real or generate 17.54% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  European Residential Real

Toronto Dominion Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toronto Dominion Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

European Residential Real

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and European Residential

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

The idea behind Toronto Dominion Bank and European Residential 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.