Correlation Between Visa and Toronto Dominion

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

By analyzing existing cross correlation between Visa Class A and Toronto Dominion Bank Pref, you can compare the effects of market volatilities on Visa and Toronto Dominion 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 Visa with a short position of Toronto Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Toronto Dominion.

Diversification Opportunities for Visa and Toronto Dominion

-0.24

Correlation Coefficient

Visa  Toronto Dominion

Very good diversification

The 3 months correlation between Visa and Toronto is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Toronto Dominion Bank Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank and Visa 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 Visa Class A are associated (or correlated) with Toronto Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toronto Dominion Bank has no effect on the direction of Visa i.e., Visa and Toronto Dominion go up and down completely randomly.

Pair Corralation between Visa and Toronto Dominion

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.71 times more return on investment than Toronto Dominion. However, Visa is 2.71 times more volatile than Toronto Dominion Bank Pref. It trades about 0.16 of its potential returns per unit of risk. Toronto Dominion Bank Pref is currently generating about -0.03 per unit of risk. If you would invest  31,478  in Visa Class A on December 29, 2024 and sell it today you would earn a total of  3,508  from holding Visa Class A or generate 11.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Visa Class A  vs.  Toronto Dominion Bank Pref

Visa Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Toronto Dominion Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toronto Dominion Bank Pref has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Toronto Dominion is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Toronto Dominion

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

The idea behind Visa Class A and Toronto Dominion Bank Pref 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.