Correlation Between IShares SPTSX and TD Active

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

By analyzing existing cross correlation between iShares SPTSX Capped and TD Active Enhanced, you can compare the effects of market volatilities on IShares SPTSX 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 IShares SPTSX with a short position of TD Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and TD Active.

Diversification Opportunities for IShares SPTSX and TD Active

0.94

Correlation Coefficient

IShares SPTSX  TD Active

Almost no diversification

The 3 months correlation between IShares and TUED is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped 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 IShares SPTSX 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 iShares SPTSX Capped 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 IShares SPTSX i.e., IShares SPTSX and TD Active go up and down completely randomly.

Pair Corralation between IShares SPTSX and TD Active

Assuming the 90 days trading horizon iShares SPTSX Capped is expected to generate 1.37 times more return on investment than TD Active. However, IShares SPTSX is 1.37 times more volatile than TD Active Enhanced. It trades about 0.06 of its potential returns per unit of risk. TD Active Enhanced is currently generating about 0.07 per unit of risk. If you would invest  6,786  in iShares SPTSX Capped on September 22, 2024 and sell it today you would earn a total of  106.00  from holding iShares SPTSX Capped or generate 1.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

iShares SPTSX Capped  vs.  TD Active Enhanced

iShares SPTSX Capped

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Capped are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with IShares SPTSX and TD Active

The main advantage of trading using opposite IShares SPTSX and TD Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SPTSX 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 iShares SPTSX Capped 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.