Correlation Between Toronto Dominion and First Northwest

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

Diversification Opportunities for Toronto Dominion and First Northwest

-0.1

Correlation Coefficient

Toronto Dominion  First Northwest

Good diversification

The 3 months correlation between Toronto and First is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and First Northwest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Northwest 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 First Northwest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Northwest Bancorp has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and First Northwest go up and down completely randomly.

Pair Corralation between Toronto Dominion and First Northwest

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to under-perform the First Northwest. But the stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank is 1.91 times less risky than First Northwest. The stock trades about -0.04 of its potential returns per unit of risk. The First Northwest Bancorp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,156  in First Northwest Bancorp on September 3, 2024 and sell it today you would lose (16.00) from holding First Northwest Bancorp or give up 1.38% of portfolio value over 90 days.

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

Toronto Dominion Bank  vs.  First Northwest 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.

First Northwest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Toronto Dominion and First Northwest

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

The idea behind Toronto Dominion Bank and First Northwest 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.