Correlation Between TD Equity and TD Canadian

Can any of the company-specific risk be diversified away by investing in both TD Equity 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 Equity 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 Equity Index and TD Canadian Equity, you can compare the effects of market volatilities on TD Equity 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 Equity with a short position of TD Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Equity and TD Canadian.

Diversification Opportunities for TD Equity and TD Canadian

0.95

Correlation Coefficient

TD Equity  TD Canadian

Almost no diversification

The 3 months correlation between TPU and TTP is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding TD Equity Index and TD Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Equity and TD Equity 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 Equity Index 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 Equity has no effect on the direction of TD Equity i.e., TD Equity and TD Canadian go up and down completely randomly.

Pair Corralation between TD Equity and TD Canadian

Assuming the 90 days trading horizon TD Equity is expected to generate 1.16 times less return on investment than TD Canadian. But when comparing it to its historical volatility, TD Equity Index is 1.06 times less risky than TD Canadian. It trades about 0.17 of its potential returns per unit of risk. TD Canadian Equity is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,876  in TD Canadian Equity on September 12, 2024 and sell it today you would earn a total of  1,047  from holding TD Canadian Equity or generate 55.81% return on investment over 90 days.

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

TD Equity Index  vs.  TD Canadian Equity

TD Equity Index

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Equity Index are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TD Canadian Equity

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Equity are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with TD Equity and TD Canadian

The main advantage of trading using opposite TD Equity and TD Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TD Equity 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 Equity Index and TD Canadian Equity 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..