Correlation Between Berkshire Hathaway and Toronto Dominion

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

By analyzing existing cross correlation between Berkshire Hathaway CDR and Toronto Dominion Bank, you can compare the effects of market volatilities on Berkshire Hathaway and Toronto Dominion 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 Berkshire Hathaway with a short position of Toronto Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Toronto Dominion.

Diversification Opportunities for Berkshire Hathaway and Toronto Dominion

0.4

Correlation Coefficient

Berkshire Hathaway  Toronto Dominion

Very weak diversification

The 3 months correlation between Berkshire and Toronto is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway CDR and Toronto Dominion Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank and Berkshire Hathaway 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 Berkshire Hathaway CDR are associated (or correlated) with Toronto Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toronto Dominion Bank has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Toronto Dominion go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Toronto Dominion

Assuming the 90 days trading horizon Berkshire Hathaway CDR is expected to generate 0.99 times more return on investment than Toronto Dominion. However, Berkshire Hathaway CDR is 1.01 times less risky than Toronto Dominion. It trades about 0.08 of its potential returns per unit of risk. Toronto Dominion Bank is currently generating about 0.08 per unit of risk. If you would invest  2,402  in Berkshire Hathaway CDR on September 23, 2024 and sell it today you would earn a total of  1,017  from holding Berkshire Hathaway CDR or generate 42.34% return on investment over 90 days.

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

Berkshire Hathaway CDR  vs.  Toronto Dominion Bank

Berkshire Hathaway CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkshire Hathaway CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Toronto Dominion Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Toronto Dominion is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hathaway and Toronto Dominion

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

The idea behind Berkshire Hathaway CDR and Toronto Dominion Bank 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.