Correlation Between TD Active and TD Select

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

By analyzing existing cross correlation between TD Active Preferred and TD Select Short, you can compare the effects of market volatilities on TD Active and TD Select 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 Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Active and TD Select.

Diversification Opportunities for TD Active and TD Select

-0.11

Correlation Coefficient

TD Active  TD Select

Good diversification

The 3 months correlation between TPRF and TUSB is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Preferred and TD Select Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Select Short 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 Preferred are associated (or correlated) with TD Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Select Short has no effect on the direction of TD Active i.e., TD Active and TD Select go up and down completely randomly.

Pair Corralation between TD Active and TD Select

Assuming the 90 days trading horizon TD Active Preferred is expected to generate 1.4 times more return on investment than TD Select. However, TD Active is 1.4 times more volatile than TD Select Short. It trades about 0.1 of its potential returns per unit of risk. TD Select Short is currently generating about 0.08 per unit of risk. If you would invest  842.00  in TD Active Preferred on September 4, 2024 and sell it today you would earn a total of  250.00  from holding TD Active Preferred or generate 29.69% return on investment over 90 days.

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

TD Active Preferred  vs.  TD Select Short

TD Active Preferred

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TD Active Preferred are ranked lower than 4 (%) 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 Select Short

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Select Short are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TD Select 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 Select

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

The idea behind TD Active Preferred and TD Select Short 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.