Correlation Between TD Global and IShares SPTSX

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

By analyzing existing cross correlation between TD Global Technology and iShares SPTSX Capped, you can compare the effects of market volatilities on TD Global and IShares SPTSX 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 Global with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Global and IShares SPTSX.

Diversification Opportunities for TD Global and IShares SPTSX

0.92

Correlation Coefficient

TD Global  IShares SPTSX

Almost no diversification

The 3 months correlation between TEC and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding TD Global Technology and iShares SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Capped and TD Global 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 Global Technology are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Capped has no effect on the direction of TD Global i.e., TD Global and IShares SPTSX go up and down completely randomly.

Pair Corralation between TD Global and IShares SPTSX

Assuming the 90 days trading horizon TD Global is expected to generate 1.67 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, TD Global Technology is 1.4 times less risky than IShares SPTSX. It trades about 0.23 of its potential returns per unit of risk. iShares SPTSX Capped is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  5,456  in iShares SPTSX Capped on August 31, 2024 and sell it today you would earn a total of  1,500  from holding iShares SPTSX Capped or generate 27.49% return on investment over 90 days.

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

TD Global Technology  vs.  iShares SPTSX Capped

TD Global Technology

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Global Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, TD Global displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares SPTSX Capped

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Capped are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TD Global and IShares SPTSX

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

The idea behind TD Global Technology and iShares SPTSX Capped 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.