Correlation Between Invesco FTSE and TD Equity

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

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

Diversification Opportunities for Invesco FTSE and TD Equity

0.91

Correlation Coefficient

Invesco FTSE  TD Equity

Almost no diversification

The 3 months correlation between Invesco and THU is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and TD Equity CAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Equity CAD and Invesco FTSE 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 Invesco FTSE RAFI are associated (or correlated) with TD Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Equity CAD has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and TD Equity go up and down completely randomly.

Pair Corralation between Invesco FTSE and TD Equity

Assuming the 90 days trading horizon Invesco FTSE is expected to generate 1.7 times less return on investment than TD Equity. But when comparing it to its historical volatility, Invesco FTSE RAFI is 1.11 times less risky than TD Equity. It trades about 0.08 of its potential returns per unit of risk. TD Equity CAD is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,556  in TD Equity CAD on October 10, 2024 and sell it today you would earn a total of  1,363  from holding TD Equity CAD or generate 53.33% return on investment over 90 days.

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

Invesco FTSE RAFI  vs.  TD Equity CAD

Invesco FTSE RAFI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Invesco FTSE is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

TD Equity CAD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TD Equity CAD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TD Equity is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco FTSE and TD Equity

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

The idea behind Invesco FTSE RAFI and TD Equity CAD 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.