Correlation Between CDSPI Petite and TD Canadian

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

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

Diversification Opportunities for CDSPI Petite and TD Canadian

0.8

Correlation Coefficient

CDSPI Petite  TD Canadian

Very poor diversification

The 3 months correlation between CDSPI and TDB900 is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CDSPI petite cap and TD Canadian Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Index and CDSPI Petite 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 CDSPI petite cap 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 Index has no effect on the direction of CDSPI Petite i.e., CDSPI Petite and TD Canadian go up and down completely randomly.

Pair Corralation between CDSPI Petite and TD Canadian

Assuming the 90 days trading horizon CDSPI petite cap is expected to under-perform the TD Canadian. In addition to that, CDSPI Petite is 1.33 times more volatile than TD Canadian Index. It trades about -0.08 of its total potential returns per unit of risk. TD Canadian Index is currently generating about -0.04 per unit of volatility. If you would invest  4,259  in TD Canadian Index on October 11, 2024 and sell it today you would lose (58.00) from holding TD Canadian Index or give up 1.36% of portfolio value over 90 days.

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

CDSPI petite cap  vs.  TD Canadian Index

CDSPI petite cap

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CDSPI petite cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, CDSPI Petite may actually be approaching a critical reversion point that can send shares even higher in February 2025.

TD Canadian Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TD Canadian Index has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong fundamental drivers, TD Canadian is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CDSPI Petite and TD Canadian

The main advantage of trading using opposite CDSPI Petite and TD Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CDSPI Petite 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 CDSPI petite cap and TD Canadian Index 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.