Correlation Between Toronto Dominion and First Interstate

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

Diversification Opportunities for Toronto Dominion and First Interstate

-0.7

Correlation Coefficient

Toronto Dominion  First Interstate

Excellent diversification

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

Pair Corralation between Toronto Dominion and First Interstate

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to under-perform the First Interstate. In addition to that, Toronto Dominion is 1.58 times more volatile than First Interstate BancSystem. It trades about -0.19 of its total potential returns per unit of risk. First Interstate BancSystem is currently generating about 0.01 per unit of volatility. If you would invest  3,393  in First Interstate BancSystem on September 12, 2024 and sell it today you would earn a total of  2.00  from holding First Interstate BancSystem or generate 0.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Toronto Dominion Bank  vs.  First Interstate BancSystem

Toronto Dominion Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toronto Dominion Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

First Interstate Ban

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, First Interstate disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and First Interstate

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

The idea behind Toronto Dominion Bank and First Interstate BancSystem 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..