Correlation Between Toronto Dominion and Western Investment

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

Diversification Opportunities for Toronto Dominion and Western Investment

0.0

Correlation Coefficient

Toronto Dominion  Western Investment

Pay attention - limited upside

The 3 months correlation between Toronto and Western is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment 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 Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Western Investment go up and down completely randomly.

Pair Corralation between Toronto Dominion and Western Investment

Assuming the 90 days trading horizon Toronto Dominion Bank is expected to generate 0.12 times more return on investment than Western Investment. However, Toronto Dominion Bank is 8.05 times less risky than Western Investment. It trades about 0.03 of its potential returns per unit of risk. Western Investment is currently generating about -0.01 per unit of risk. If you would invest  2,441  in Toronto Dominion Bank on December 30, 2024 and sell it today you would earn a total of  16.00  from holding Toronto Dominion Bank or generate 0.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	89.06%
Values	Daily Returns

Toronto Dominion Bank  vs.  Western Investment

Toronto Dominion Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 2 (%) 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.

Western Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Western Investment is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Toronto Dominion and Western Investment

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

The idea behind Toronto Dominion Bank and Western Investment 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.