Correlation Between TD Q and TD Active

Can any of the company-specific risk be diversified away by investing in both TD Q 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 Q 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 Q Global and TD Active Enhanced, you can compare the effects of market volatilities on TD Q 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 Q with a short position of TD Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Q and TD Active.

Diversification Opportunities for TD Q and TD Active

0.68

Correlation Coefficient

TD Q  TD Active

Poor diversification

The 3 months correlation between TQGD and TUED is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding TD Q Global and TD Active Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Active Enhanced and TD Q 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 Q Global 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 Enhanced has no effect on the direction of TD Q i.e., TD Q and TD Active go up and down completely randomly.

Pair Corralation between TD Q and TD Active

Assuming the 90 days trading horizon TD Q Global is expected to generate 0.49 times more return on investment than TD Active. However, TD Q Global is 2.03 times less risky than TD Active. It trades about 0.25 of its potential returns per unit of risk. TD Active Enhanced is currently generating about 0.01 per unit of risk. If you would invest  2,004  in TD Q Global on December 2, 2024 and sell it today you would earn a total of  116.00  from holding TD Q Global or generate 5.79% return on investment over 90 days.

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

TD Q Global  vs.  TD Active Enhanced

TD Q Global

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TD Q Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, TD Q is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

TD Active Enhanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Active Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with TD Q and TD Active

The main advantage of trading using opposite TD Q and TD Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TD Q 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 Q Global and TD Active Enhanced 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.