Correlation Between Toronto Dominion and Theratechnologies

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

Diversification Opportunities for Toronto Dominion and Theratechnologies

0.8

Correlation Coefficient

Toronto Dominion  Theratechnologies

Very poor diversification

The 3 months correlation between Toronto and Theratechnologies is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Theratechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Theratechnologies 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 Theratechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Theratechnologies has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Theratechnologies go up and down completely randomly.

Pair Corralation between Toronto Dominion and Theratechnologies

Assuming the 90 days trading horizon Toronto Dominion is expected to generate 10.73 times less return on investment than Theratechnologies. But when comparing it to its historical volatility, Toronto Dominion Bank is 6.44 times less risky than Theratechnologies. It trades about 0.19 of its potential returns per unit of risk. Theratechnologies is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  177.00  in Theratechnologies on October 7, 2024 and sell it today you would earn a total of  91.00  from holding Theratechnologies or generate 51.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	80.49%
Values	Daily Returns

Toronto Dominion Bank  vs.  Theratechnologies

Toronto Dominion Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 11 (%) 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.

Theratechnologies

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Theratechnologies are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Theratechnologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and Theratechnologies

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

The idea behind Toronto Dominion Bank and Theratechnologies 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.