Correlation Between Toronto Dominion and Enbridge Pref

Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and Enbridge Pref 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 Enbridge Pref 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 Enbridge Pref 5, you can compare the effects of market volatilities on Toronto Dominion and Enbridge Pref 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 Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Enbridge Pref.

Diversification Opportunities for Toronto Dominion and Enbridge Pref

0.8

Correlation Coefficient

Toronto Dominion  Enbridge Pref

Very poor diversification

The 3 months correlation between Toronto and Enbridge is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Enbridge Pref 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 5 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 Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 5 has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Enbridge Pref go up and down completely randomly.

Pair Corralation between Toronto Dominion and Enbridge Pref

Assuming the 90 days trading horizon Toronto Dominion is expected to generate 1.99 times less return on investment than Enbridge Pref. But when comparing it to its historical volatility, Toronto Dominion Bank is 1.28 times less risky than Enbridge Pref. It trades about 0.18 of its potential returns per unit of risk. Enbridge Pref 5 is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,350  in Enbridge Pref 5 on August 30, 2024 and sell it today you would earn a total of  49.00  from holding Enbridge Pref 5 or generate 2.09% return on investment over 90 days.

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

Toronto Dominion Bank  vs.  Enbridge Pref 5

Toronto Dominion Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank are ranked lower than 7 (%) 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.

Enbridge Pref 5

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Enbridge Pref may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Toronto Dominion and Enbridge Pref

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

The idea behind Toronto Dominion Bank and Enbridge Pref 5 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.