Correlation Between Vanguard and TD Q

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

By analyzing existing cross correlation between Vanguard SP 500 and TD Q Canadian, you can compare the effects of market volatilities on Vanguard and TD Q 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 Vanguard with a short position of TD Q. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and TD Q.

Diversification Opportunities for Vanguard and TD Q

0.51

Correlation Coefficient

Vanguard  TD Q

Very weak diversification

The 3 months correlation between Vanguard and TQCD is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and TD Q Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Q Canadian and Vanguard 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 Vanguard SP 500 are associated (or correlated) with TD Q. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Q Canadian has no effect on the direction of Vanguard i.e., Vanguard and TD Q go up and down completely randomly.

Pair Corralation between Vanguard and TD Q

Assuming the 90 days trading horizon Vanguard SP 500 is expected to under-perform the TD Q. In addition to that, Vanguard is 1.33 times more volatile than TD Q Canadian. It trades about -0.09 of its total potential returns per unit of risk. TD Q Canadian is currently generating about 0.0 per unit of volatility. If you would invest  1,970  in TD Q Canadian on December 30, 2024 and sell it today you would lose (1.00) from holding TD Q Canadian or give up 0.05% of portfolio value over 90 days.

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

Vanguard SP 500  vs.  TD Q Canadian

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

TD Q Canadian

Risk-Adjusted Performance

Very Weak

Over the last 90 days TD Q Canadian has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Vanguard and TD Q

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

The idea behind Vanguard SP 500 and TD Q Canadian 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.