Correlation Between TD Active and Vanguard

Can any of the company-specific risk be diversified away by investing in both TD Active and Vanguard 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 Vanguard 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 Vanguard SP 500, you can compare the effects of market volatilities on TD Active and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Active and Vanguard.

Diversification Opportunities for TD Active and Vanguard

0.99

Correlation Coefficient

TD Active  Vanguard

No risk reduction

The 3 months correlation between TUED and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding TD Active Enhanced and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of TD Active i.e., TD Active and Vanguard go up and down completely randomly.

Pair Corralation between TD Active and Vanguard

Assuming the 90 days trading horizon TD Active is expected to generate 1.71 times less return on investment than Vanguard. In addition to that, TD Active is 1.46 times more volatile than Vanguard SP 500. It trades about 0.06 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.16 per unit of volatility. If you would invest  14,817  in Vanguard SP 500 on September 23, 2024 and sell it today you would earn a total of  350.00  from holding Vanguard SP 500 or generate 2.36% return on investment over 90 days.

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

TD Active Enhanced  vs.  Vanguard SP 500

TD Active Enhanced

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TD Active Enhanced are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Active may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard SP 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with TD Active and Vanguard

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

The idea behind TD Active Enhanced and Vanguard SP 500 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.