Correlation Between TD Active and TD International

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

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

Diversification Opportunities for TD Active and TD International

-0.56

Correlation Coefficient

TD Active  TD International

Excellent diversification

The 3 months correlation between TGED and TPE is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Global and TD International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD International Equity and TD Active 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 Active Global are associated (or correlated) with TD International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD International Equity has no effect on the direction of TD Active i.e., TD Active and TD International go up and down completely randomly.

Pair Corralation between TD Active and TD International

Assuming the 90 days trading horizon TD Active Global is expected to under-perform the TD International. In addition to that, TD Active is 1.49 times more volatile than TD International Equity. It trades about -0.06 of its total potential returns per unit of risk. TD International Equity is currently generating about 0.2 per unit of volatility. If you would invest  2,231  in TD International Equity on December 28, 2024 and sell it today you would earn a total of  207.00  from holding TD International Equity or generate 9.28% return on investment over 90 days.

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

TD Active Global  vs.  TD International Equity

TD Active Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Active Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, TD Active is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

TD International Equity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TD International Equity are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, TD International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with TD Active and TD International

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

The idea behind TD Active Global and TD International Equity 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.