Correlation Between Toronto Dominion and American Lithium

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

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

Diversification Opportunities for Toronto Dominion and American Lithium

-0.58

Correlation Coefficient

Toronto Dominion  American Lithium

Excellent diversification

The 3 months correlation between Toronto and American is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Toronto Dominion 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 Toronto Dominion Bank are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and American Lithium go up and down completely randomly.

Pair Corralation between Toronto Dominion and American Lithium

Assuming the 90 days trading horizon Toronto Dominion Bank is expected to generate 0.23 times more return on investment than American Lithium. However, Toronto Dominion Bank is 4.29 times less risky than American Lithium. It trades about 0.18 of its potential returns per unit of risk. American Lithium Corp is currently generating about 0.0 per unit of risk. If you would invest  2,111  in Toronto Dominion Bank on March 5, 2024 and sell it today you would earn a total of  214.00  from holding Toronto Dominion Bank or generate 10.14% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  American Lithium Corp

Toronto Dominion Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Toronto Dominion may actually be approaching a critical reversion point that can send shares even higher in July 2024.

American Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, American Lithium is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Toronto Dominion and American Lithium

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

The idea behind Toronto Dominion Bank and American Lithium Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.