Correlation Between Baytex Energy and Toronto Dominion

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

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

Diversification Opportunities for Baytex Energy and Toronto Dominion

-0.05

Correlation Coefficient

Baytex Energy  Toronto Dominion

Good diversification

The 3 months correlation between Baytex and Toronto is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Baytex Energy Corp and Toronto Dominion Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank and Baytex Energy 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 Baytex Energy Corp 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 Baytex Energy i.e., Baytex Energy and Toronto Dominion go up and down completely randomly.

Pair Corralation between Baytex Energy and Toronto Dominion

Assuming the 90 days trading horizon Baytex Energy Corp is expected to under-perform the Toronto Dominion. In addition to that, Baytex Energy is 1.78 times more volatile than Toronto Dominion Bank. It trades about -0.18 of its total potential returns per unit of risk. Toronto Dominion Bank is currently generating about -0.19 per unit of volatility. If you would invest  8,105  in Toronto Dominion Bank on February 29, 2024 and sell it today you would lose (527.00) from holding Toronto Dominion Bank or give up 6.5% of portfolio value over 90 days.

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

Baytex Energy Corp  vs.  Toronto Dominion Bank

Baytex Energy Corp

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baytex Energy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Baytex Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Toronto Dominion Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Baytex Energy and Toronto Dominion

The main advantage of trading using opposite Baytex Energy and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baytex Energy 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 Baytex Energy Corp and Toronto Dominion Bank 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 CEOs Directory module to screen CEOs from public companies around the world.