Correlation Between Toronto Dominion and Sierra Bancorp

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

Diversification Opportunities for Toronto Dominion and Sierra Bancorp

-0.38

Correlation Coefficient

Toronto Dominion  Sierra Bancorp

Very good diversification

The 3 months correlation between Toronto and Sierra is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Sierra Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Bancorp 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 Sierra Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Bancorp has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Sierra Bancorp go up and down completely randomly.

Pair Corralation between Toronto Dominion and Sierra Bancorp

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to under-perform the Sierra Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank is 2.73 times less risky than Sierra Bancorp. The stock trades about -0.04 of its potential returns per unit of risk. The Sierra Bancorp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,979  in Sierra Bancorp on September 3, 2024 and sell it today you would earn a total of  168.00  from holding Sierra Bancorp or generate 5.64% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Sierra Bancorp

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 rather sound fundamental indicators, Toronto Dominion is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sierra Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sierra Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Toronto Dominion and Sierra Bancorp

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

The idea behind Toronto Dominion Bank and Sierra Bancorp 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.