Correlation Between Toronto Dominion and Metro

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

Diversification Opportunities for Toronto Dominion and Metro

-0.23

Correlation Coefficient

Toronto Dominion  Metro

Very good diversification

The 3 months correlation between Toronto and Metro is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc 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 Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Metro go up and down completely randomly.

Pair Corralation between Toronto Dominion and Metro

Assuming the 90 days horizon Toronto Dominion is expected to generate 12.02 times less return on investment than Metro. In addition to that, Toronto Dominion is 1.18 times more volatile than Metro Inc. It trades about 0.0 of its total potential returns per unit of risk. Metro Inc is currently generating about 0.06 per unit of volatility. If you would invest  6,803  in Metro Inc on October 23, 2024 and sell it today you would earn a total of  2,205  from holding Metro Inc or generate 32.41% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Metro Inc

Toronto Dominion Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Toronto Dominion may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Metro Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Toronto Dominion and Metro

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

The idea behind Toronto Dominion Bank and Metro Inc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.