Correlation Between TD Active and Invesco FTSE

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

By analyzing existing cross correlation between TD Active Enhanced and Invesco FTSE RAFI, you can compare the effects of market volatilities on TD Active and Invesco FTSE 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 Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Active and Invesco FTSE.

Diversification Opportunities for TD Active and Invesco FTSE

0.78

Correlation Coefficient

TD Active  Invesco FTSE

Poor diversification

The 3 months correlation between TUED and Invesco is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Enhanced and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 Enhanced are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of TD Active i.e., TD Active and Invesco FTSE go up and down completely randomly.

Pair Corralation between TD Active and Invesco FTSE

Assuming the 90 days trading horizon TD Active Enhanced is expected to generate 1.08 times more return on investment than Invesco FTSE. However, TD Active is 1.08 times more volatile than Invesco FTSE RAFI. It trades about 0.12 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.06 per unit of risk. If you would invest  1,848  in TD Active Enhanced on October 10, 2024 and sell it today you would earn a total of  1,265  from holding TD Active Enhanced or generate 68.45% return on investment over 90 days.

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

TD Active Enhanced  vs.  Invesco FTSE RAFI

TD Active Enhanced

Risk-Adjusted Performance

0 of 100

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 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.

Invesco FTSE RAFI

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco FTSE 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 Active and Invesco FTSE

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

The idea behind TD Active Enhanced and Invesco FTSE RAFI 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.