Correlation Between Toronto Dominion and Citizens Financial

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

Diversification Opportunities for Toronto Dominion and Citizens Financial

0.03

Correlation Coefficient

Toronto Dominion  Citizens Financial

Significant diversification

The 3 months correlation between Toronto and Citizens is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Citizens Financial Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial Group, 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 Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Group, has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Citizens Financial go up and down completely randomly.

Pair Corralation between Toronto Dominion and Citizens Financial

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to generate 0.63 times more return on investment than Citizens Financial. However, Toronto Dominion Bank is 1.59 times less risky than Citizens Financial. It trades about 0.25 of its potential returns per unit of risk. Citizens Financial Group, is currently generating about -0.04 per unit of risk. If you would invest  5,237  in Toronto Dominion Bank on December 28, 2024 and sell it today you would earn a total of  859.00  from holding Toronto Dominion Bank or generate 16.4% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Citizens Financial Group,

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 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Toronto Dominion exhibited solid returns over the last few months and may actually be approaching a breakup point.

Citizens Financial Group,

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citizens Financial Group, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Toronto Dominion and Citizens Financial

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

The idea behind Toronto Dominion Bank and Citizens Financial Group, 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.