Correlation Between TD Index and TD Dividend

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

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

Diversification Opportunities for TD Index and TD Dividend

0.85

Correlation Coefficient

TD Index  TD Dividend

Very poor diversification

The 3 months correlation between 0P000071W8 and 0P00016N6E is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding TD Index Fund and TD Dividend Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Dividend Growth and TD Index 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 Index Fund are associated (or correlated) with TD Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Dividend Growth has no effect on the direction of TD Index i.e., TD Index and TD Dividend go up and down completely randomly.

Pair Corralation between TD Index and TD Dividend

Assuming the 90 days trading horizon TD Index Fund is expected to under-perform the TD Dividend. In addition to that, TD Index is 1.23 times more volatile than TD Dividend Growth. It trades about -0.09 of its total potential returns per unit of risk. TD Dividend Growth is currently generating about -0.03 per unit of volatility. If you would invest  1,862  in TD Dividend Growth on December 30, 2024 and sell it today you would lose (29.00) from holding TD Dividend Growth or give up 1.56% of portfolio value over 90 days.

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

TD Index Fund  vs.  TD Dividend Growth

TD Index Fund

Risk-Adjusted Performance

Very Weak

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

TD Dividend Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with TD Index and TD Dividend

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

The idea behind TD Index Fund and TD Dividend Growth 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.