Correlation Between Toronto Dominion and Economic Investment

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

Diversification Opportunities for Toronto Dominion and Economic Investment

0.31

Correlation Coefficient

Toronto Dominion  Economic Investment

Weak diversification

The 3 months correlation between Toronto and Economic is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Economic Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Economic Investment Trust 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 Economic Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Economic Investment Trust has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Economic Investment go up and down completely randomly.

Pair Corralation between Toronto Dominion and Economic Investment

Assuming the 90 days horizon Toronto Dominion Bank is expected to generate 0.25 times more return on investment than Economic Investment. However, Toronto Dominion Bank is 3.95 times less risky than Economic Investment. It trades about -0.01 of its potential returns per unit of risk. Economic Investment Trust is currently generating about -0.14 per unit of risk. If you would invest  8,664  in Toronto Dominion Bank on December 30, 2024 and sell it today you would lose (27.00) from holding Toronto Dominion Bank or give up 0.31% of portfolio value over 90 days.

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

Toronto Dominion Bank  vs.  Economic Investment Trust

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.

Economic Investment Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Economic Investment Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Economic Investment 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 Economic Investment

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

The idea behind Toronto Dominion Bank and Economic Investment Trust 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.