Correlation Between Toronto Dominion and American Creek

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

By analyzing existing cross correlation between Toronto Dominion Bank Pref and American Creek Resources, you can compare the effects of market volatilities on Toronto Dominion and American Creek 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 Creek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and American Creek.

Diversification Opportunities for Toronto Dominion and American Creek

-0.41

Correlation Coefficient

Toronto Dominion  American Creek

Very good diversification

The 3 months correlation between Toronto and American is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank Pref and American Creek Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Creek Resources 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 Pref are associated (or correlated) with American Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Creek Resources has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and American Creek go up and down completely randomly.

Pair Corralation between Toronto Dominion and American Creek

Assuming the 90 days trading horizon Toronto Dominion is expected to generate 5.14 times less return on investment than American Creek. But when comparing it to its historical volatility, Toronto Dominion Bank Pref is 8.82 times less risky than American Creek. It trades about 0.05 of its potential returns per unit of risk. American Creek Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14.00  in American Creek Resources on March 28, 2024 and sell it today you would earn a total of  2.00  from holding American Creek Resources or generate 14.29% 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 Pref  vs.  American Creek Resources

Toronto Dominion Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank Pref are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Toronto Dominion is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

American Creek Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Creek Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, American Creek showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toronto Dominion and American Creek

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

The idea behind Toronto Dominion Bank Pref and American Creek Resources 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..