Correlation Between Income Financial and Toronto Dominion

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

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

Diversification Opportunities for Income Financial and Toronto Dominion

0.75

Correlation Coefficient

Income Financial  Toronto Dominion

Poor diversification

The 3 months correlation between Income and Toronto is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Income Financial Trust 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 Income Financial 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 Income Financial Trust 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 Income Financial i.e., Income Financial and Toronto Dominion go up and down completely randomly.

Pair Corralation between Income Financial and Toronto Dominion

Assuming the 90 days trading horizon Income Financial Trust is expected to generate 2.86 times more return on investment than Toronto Dominion. However, Income Financial is 2.86 times more volatile than Toronto Dominion Bank. It trades about 0.15 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  774.00  in Income Financial Trust on September 12, 2024 and sell it today you would earn a total of  97.00  from holding Income Financial Trust or generate 12.53% return on investment over 90 days.

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

Income Financial Trust  vs.  Toronto Dominion Bank

Income Financial Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Income Financial Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Income Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Toronto Dominion Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 6 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Income Financial and Toronto Dominion

The main advantage of trading using opposite Income Financial and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Financial 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 Income Financial Trust 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.