Correlation Between Toronto Dominion and Enghouse Systems

Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and Enghouse Systems 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 Enghouse Systems 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 Enghouse Systems, you can compare the effects of market volatilities on Toronto Dominion and Enghouse Systems 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 Enghouse Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Enghouse Systems.

Diversification Opportunities for Toronto Dominion and Enghouse Systems

-0.65

Correlation Coefficient

Toronto Dominion  Enghouse Systems

Excellent diversification

The 3 months correlation between Toronto and Enghouse is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Enghouse Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enghouse Systems 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 Enghouse Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enghouse Systems has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Enghouse Systems go up and down completely randomly.

Pair Corralation between Toronto Dominion and Enghouse Systems

Assuming the 90 days trading horizon Toronto Dominion Bank is expected to generate 0.2 times more return on investment than Enghouse Systems. However, Toronto Dominion Bank is 5.04 times less risky than Enghouse Systems. It trades about 0.08 of its potential returns per unit of risk. Enghouse Systems is currently generating about -0.13 per unit of risk. If you would invest  2,430  in Toronto Dominion Bank on December 4, 2024 and sell it today you would earn a total of  46.00  from holding Toronto Dominion Bank or generate 1.89% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Enghouse Systems

Toronto Dominion Bank

Risk-Adjusted Performance

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Enghouse Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enghouse Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Toronto Dominion and Enghouse Systems

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

The idea behind Toronto Dominion Bank and Enghouse Systems 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.