Correlation Between TD Equity and TD Active

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

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

Diversification Opportunities for TD Equity and TD Active

0.85

Correlation Coefficient

TD Equity  TD Active

Very poor diversification

The 3 months correlation between THU and TGED is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding TD Equity CAD and TD Active Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Active Global and TD Equity 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 Equity CAD are associated (or correlated) with TD Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Active Global has no effect on the direction of TD Equity i.e., TD Equity and TD Active go up and down completely randomly.

Pair Corralation between TD Equity and TD Active

Assuming the 90 days trading horizon TD Equity CAD is expected to under-perform the TD Active. But the etf apears to be less risky and, when comparing its historical volatility, TD Equity CAD is 1.27 times less risky than TD Active. The etf trades about -0.08 of its potential returns per unit of risk. The TD Active Global is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,787  in TD Active Global on December 3, 2024 and sell it today you would lose (45.00) from holding TD Active Global or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

TD Equity CAD  vs.  TD Active Global

TD Equity CAD

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with TD Equity and TD Active

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

The idea behind TD Equity CAD and TD Active Global 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.