Correlation Between Mawer Equity and TD Index

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

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

Diversification Opportunities for Mawer Equity and TD Index

0.97

Correlation Coefficient

Mawer Equity  TD Index

Almost no diversification

The 3 months correlation between Mawer and 0P000071W8 is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mawer Equity A and TD Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Index Fund and Mawer 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 Mawer Equity A are associated (or correlated) with TD Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Index Fund has no effect on the direction of Mawer Equity i.e., Mawer Equity and TD Index go up and down completely randomly.

Pair Corralation between Mawer Equity and TD Index

Assuming the 90 days trading horizon Mawer Equity is expected to generate 1.46 times less return on investment than TD Index. But when comparing it to its historical volatility, Mawer Equity A is 1.21 times less risky than TD Index. It trades about 0.23 of its potential returns per unit of risk. TD Index Fund is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  13,150  in TD Index Fund on September 3, 2024 and sell it today you would earn a total of  1,816  from holding TD Index Fund or generate 13.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Mawer Equity A  vs.  TD Index Fund

Mawer Equity A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mawer Equity A are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, Mawer Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TD Index Fund

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Index Fund are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unfluctuating basic indicators, TD Index sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mawer Equity and TD Index

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

The idea behind Mawer Equity A and TD Index Fund 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.