Correlation Between HSBC Holdings and Toronto Dominion

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

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

Diversification Opportunities for HSBC Holdings and Toronto Dominion

0.86

Correlation Coefficient

HSBC Holdings  Toronto Dominion

Very poor diversification

The 3 months correlation between HSBC and Toronto is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings PLC 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 HSBC Holdings 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 HSBC Holdings PLC 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 HSBC Holdings i.e., HSBC Holdings and Toronto Dominion go up and down completely randomly.

Pair Corralation between HSBC Holdings and Toronto Dominion

Given the investment horizon of 90 days HSBC Holdings PLC is expected to generate 1.31 times more return on investment than Toronto Dominion. However, HSBC Holdings is 1.31 times more volatile than Toronto Dominion Bank. It trades about 0.24 of its potential returns per unit of risk. Toronto Dominion Bank is currently generating about 0.25 per unit of risk. If you would invest  4,801  in HSBC Holdings PLC on December 28, 2024 and sell it today you would earn a total of  1,033  from holding HSBC Holdings PLC or generate 21.52% return on investment over 90 days.

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

HSBC Holdings PLC  vs.  Toronto Dominion Bank

HSBC Holdings PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings PLC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, HSBC Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Toronto Dominion Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Toronto Dominion exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HSBC Holdings and Toronto Dominion

The main advantage of trading using opposite HSBC Holdings and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings 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 HSBC Holdings PLC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.