Correlation Between TD Active and TD Canadian

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

By analyzing existing cross correlation between TD Active Global and TD Canadian Aggregate, you can compare the effects of market volatilities on TD Active and TD Canadian 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 TD Active with a short position of TD Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Active and TD Canadian.

Diversification Opportunities for TD Active and TD Canadian

0.69

Correlation Coefficient

TD Active  TD Canadian

Poor diversification

The 3 months correlation between TGFI and TDB is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Global and TD Canadian Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Aggregate and TD Active 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 TD Active Global are associated (or correlated) with TD Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Canadian Aggregate has no effect on the direction of TD Active i.e., TD Active and TD Canadian go up and down completely randomly.

Pair Corralation between TD Active and TD Canadian

Assuming the 90 days trading horizon TD Active is expected to generate 2.4 times less return on investment than TD Canadian. But when comparing it to its historical volatility, TD Active Global is 1.88 times less risky than TD Canadian. It trades about 0.12 of its potential returns per unit of risk. TD Canadian Aggregate is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,303  in TD Canadian Aggregate on September 1, 2024 and sell it today you would earn a total of  20.00  from holding TD Canadian Aggregate or generate 1.53% return on investment over 90 days.

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

TD Active Global  vs.  TD Canadian Aggregate

TD Active Global

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TD Active Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TD Active is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

TD Canadian Aggregate

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Aggregate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, TD Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TD Active and TD Canadian

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

The idea behind TD Active Global and TD Canadian Aggregate 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.