Correlation Between Toronto Dominion and Premium Income

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

Diversification Opportunities for Toronto Dominion and Premium Income

-0.7

Correlation Coefficient

Toronto Dominion  Premium Income

Excellent diversification

The 3 months correlation between Toronto and Premium is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income 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 Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Premium Income go up and down completely randomly.

Pair Corralation between Toronto Dominion and Premium Income

Assuming the 90 days horizon Toronto Dominion Bank is expected to generate 0.79 times more return on investment than Premium Income. However, Toronto Dominion Bank is 1.26 times less risky than Premium Income. It trades about 0.22 of its potential returns per unit of risk. Premium Income is currently generating about -0.16 per unit of risk. If you would invest  7,459  in Toronto Dominion Bank on December 23, 2024 and sell it today you would earn a total of  1,071  from holding Toronto Dominion Bank or generate 14.36% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Premium Income

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 17 (%) 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.

Premium Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premium Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Toronto Dominion and Premium Income

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

The idea behind Toronto Dominion Bank and Premium Income 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.