Correlation Between Toronto Dominion and Five Star

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

Diversification Opportunities for Toronto Dominion and Five Star

-0.74

Correlation Coefficient

Toronto Dominion  Five Star

Pay attention - limited upside

The 3 months correlation between Toronto and Five is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Five Star Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Star Bancorp 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 Five Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Star Bancorp has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Five Star go up and down completely randomly.

Pair Corralation between Toronto Dominion and Five Star

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to under-perform the Five Star. But the stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank is 1.65 times less risky than Five Star. The stock trades about -0.15 of its potential returns per unit of risk. The Five Star Bancorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,867  in Five Star Bancorp on September 12, 2024 and sell it today you would earn a total of  462.00  from holding Five Star Bancorp or generate 16.11% 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.  Five Star Bancorp

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.

Five Star Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Star Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, Five Star exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and Five Star

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

The idea behind Toronto Dominion Bank and Five Star Bancorp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .