Correlation Between TD Canadian and TD Index

Can any of the company-specific risk be diversified away by investing in both TD Canadian and TD Index 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 TD Canadian and TD Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TD Canadian Index and TD Index Fund, you can compare the effects of market volatilities on TD Canadian and TD Index 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 TD Canadian with a short position of TD Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Canadian and TD Index.

Diversification Opportunities for TD Canadian and TD Index

0.65

Correlation Coefficient

TD Canadian  TD Index

Poor diversification

The 3 months correlation between TDB900 and 0P000071W8 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding TD Canadian Index and TD Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Index Fund and TD Canadian 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 TD Canadian Index are associated (or correlated) with TD Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Index Fund has no effect on the direction of TD Canadian i.e., TD Canadian and TD Index go up and down completely randomly.

Pair Corralation between TD Canadian and TD Index

Assuming the 90 days trading horizon TD Canadian Index is expected to generate 0.83 times more return on investment than TD Index. However, TD Canadian Index is 1.21 times less risky than TD Index. It trades about 0.06 of its potential returns per unit of risk. TD Index Fund is currently generating about -0.06 per unit of risk. If you would invest  4,172  in TD Canadian Index on December 27, 2024 and sell it today you would earn a total of  122.00  from holding TD Canadian Index or generate 2.92% return on investment over 90 days.

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

TD Canadian Index  vs.  TD Index Fund

TD Canadian Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong fundamental drivers, TD Canadian is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

TD Index Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Index Fund has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, TD Index is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TD Canadian and TD Index

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

The idea behind TD Canadian Index and TD Index Fund 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.