Correlation Between Apple and Toronto Dominion

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

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

Diversification Opportunities for Apple and Toronto Dominion

0.5

Correlation Coefficient

Apple  Toronto Dominion

Very weak diversification

The 3 months correlation between Apple and Toronto is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc CDR 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 Apple 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 Apple Inc CDR 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 Apple i.e., Apple and Toronto Dominion go up and down completely randomly.

Pair Corralation between Apple and Toronto Dominion

Assuming the 90 days trading horizon Apple Inc CDR is expected to generate 2.73 times more return on investment than Toronto Dominion. However, Apple is 2.73 times more volatile than Toronto Dominion Bank. It trades about 0.08 of its potential returns per unit of risk. Toronto Dominion Bank is currently generating about 0.15 per unit of risk. If you would invest  3,279  in Apple Inc CDR on September 3, 2024 and sell it today you would earn a total of  196.00  from holding Apple Inc CDR or generate 5.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.25%
Values	Daily Returns

Apple Inc CDR  vs.  Toronto Dominion Bank

Apple Inc CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Apple is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Toronto Dominion Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Toronto Dominion is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Apple and Toronto Dominion

The main advantage of trading using opposite Apple and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc CDR 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.