Correlation Between Toronto Dominion and Polaris Infrastructure

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

Diversification Opportunities for Toronto Dominion and Polaris Infrastructure

-0.75

Correlation Coefficient

Toronto Dominion  Polaris Infrastructure

Pay attention - limited upside

The 3 months correlation between Toronto and Polaris is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Polaris Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polaris Infrastructure 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 Polaris Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polaris Infrastructure has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Polaris Infrastructure go up and down completely randomly.

Pair Corralation between Toronto Dominion and Polaris Infrastructure

Assuming the 90 days horizon Toronto Dominion Bank is expected to generate 0.8 times more return on investment than Polaris Infrastructure. However, Toronto Dominion Bank is 1.25 times less risky than Polaris Infrastructure. It trades about 0.22 of its potential returns per unit of risk. Polaris Infrastructure is currently generating about -0.08 per unit of risk. If you would invest  7,459  in Toronto Dominion Bank on December 22, 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.  Polaris Infrastructure

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.

Polaris Infrastructure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Polaris Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Toronto Dominion and Polaris Infrastructure

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

The idea behind Toronto Dominion Bank and Polaris Infrastructure 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..