Correlation Between Toronto Dominion and Apple

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

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

Diversification Opportunities for Toronto Dominion and Apple

0.58

Correlation Coefficient

Toronto Dominion  Apple

Very weak diversification

The 3 months correlation between Toronto and Apple is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Apple Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc CDR and Toronto Dominion 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 Toronto Dominion Bank are associated (or correlated) with Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc CDR has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Apple go up and down completely randomly.

Pair Corralation between Toronto Dominion and Apple

Assuming the 90 days trading horizon Toronto Dominion is expected to generate 2.14 times less return on investment than Apple. But when comparing it to its historical volatility, Toronto Dominion Bank is 1.51 times less risky than Apple. It trades about 0.08 of its potential returns per unit of risk. Apple Inc CDR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,866  in Apple Inc CDR on September 23, 2024 and sell it today you would earn a total of  1,865  from holding Apple Inc CDR or generate 99.95% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Apple Inc CDR

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.

Apple Inc CDR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc CDR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Toronto Dominion and Apple

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

The idea behind Toronto Dominion Bank and Apple Inc CDR 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.