Correlation Between Toronto Dominion and Algonquin Power

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

Diversification Opportunities for Toronto Dominion and Algonquin Power

0.73

Correlation Coefficient

Toronto Dominion  Algonquin Power

Poor diversification

The 3 months correlation between Toronto and Algonquin is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Algonquin Power go up and down completely randomly.

Pair Corralation between Toronto Dominion and Algonquin Power

Assuming the 90 days horizon Toronto Dominion is expected to generate 1.19 times less return on investment than Algonquin Power. But when comparing it to its historical volatility, Toronto Dominion Bank is 1.55 times less risky than Algonquin Power. It trades about 0.22 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  632.00  in Algonquin Power Utilities on December 30, 2024 and sell it today you would earn a total of  110.00  from holding Algonquin Power Utilities or generate 17.41% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Algonquin Power Utilities

Toronto Dominion Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Toronto Dominion displayed solid returns over the last few months and may actually be approaching a breakup point.

Algonquin Power Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Algonquin Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and Algonquin Power

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

The idea behind Toronto Dominion Bank and Algonquin Power Utilities 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.