Correlation Between Toronto Dominion and Home Federal

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

Diversification Opportunities for Toronto Dominion and Home Federal

0.59

Correlation Coefficient

Toronto Dominion  Home Federal

Very weak diversification

The 3 months correlation between Toronto and Home is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal 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 Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Home Federal go up and down completely randomly.

Pair Corralation between Toronto Dominion and Home Federal

Allowing for the 90-day total investment horizon Toronto Dominion Bank is expected to generate 0.41 times more return on investment than Home Federal. However, Toronto Dominion Bank is 2.42 times less risky than Home Federal. It trades about 0.25 of its potential returns per unit of risk. Home Federal Bancorp is currently generating about 0.06 per unit of risk. If you would invest  5,229  in Toronto Dominion Bank on December 27, 2024 and sell it today you would earn a total of  866.00  from holding Toronto Dominion Bank or generate 16.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.33%
Values	Daily Returns

Toronto Dominion Bank  vs.  Home Federal Bancorp

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.

Home Federal Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Federal Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Home Federal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Toronto Dominion and Home Federal

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

The idea behind Toronto Dominion Bank and Home Federal 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.