Correlation Between Toronto Dominion and Algoma Central

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

By analyzing existing cross correlation between Toronto Dominion Bank Pref and Algoma Central, you can compare the effects of market volatilities on Toronto Dominion and Algoma Central 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 Algoma Central. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Algoma Central.

Diversification Opportunities for Toronto Dominion and Algoma Central

-0.4

Correlation Coefficient

Toronto Dominion  Algoma Central

Very good diversification

The 3 months correlation between Toronto and Algoma is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank Pref and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central 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 Pref are associated (or correlated) with Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Algoma Central go up and down completely randomly.

Pair Corralation between Toronto Dominion and Algoma Central

Assuming the 90 days trading horizon Toronto Dominion Bank Pref is expected to under-perform the Algoma Central. But the preferred stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank Pref is 2.51 times less risky than Algoma Central. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Algoma Central is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,441  in Algoma Central on December 23, 2024 and sell it today you would earn a total of  85.00  from holding Algoma Central or generate 5.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Toronto Dominion Bank Pref  vs.  Algoma Central

Toronto Dominion Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toronto Dominion Bank Pref has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Toronto Dominion is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Algoma Central

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Algoma Central is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Toronto Dominion and Algoma Central

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

The idea behind Toronto Dominion Bank Pref and Algoma Central 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.