Correlation Between Microsoft Corp and Toronto Dominion

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

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

Diversification Opportunities for Microsoft Corp and Toronto Dominion

0.91

Correlation Coefficient

Microsoft Corp  Toronto Dominion

Almost no diversification

The 3 months correlation between Microsoft and Toronto is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Toronto Dominion Bank Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank and Microsoft Corp 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 Microsoft Corp 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 Microsoft Corp i.e., Microsoft Corp and Toronto Dominion go up and down completely randomly.

Pair Corralation between Microsoft Corp and Toronto Dominion

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 5.16 times more return on investment than Toronto Dominion. However, Microsoft Corp is 5.16 times more volatile than Toronto Dominion Bank Pref. It trades about 0.26 of its potential returns per unit of risk. Toronto Dominion Bank Pref is currently generating about 0.32 per unit of risk. If you would invest  2,595  in Microsoft Corp CDR on April 7, 2025 and sell it today you would earn a total of  957.00  from holding Microsoft Corp CDR or generate 36.88% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Toronto Dominion Bank Pref

Microsoft Corp CDR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Microsoft Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Toronto Dominion Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Toronto Dominion Bank Pref are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Toronto Dominion may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft Corp and Toronto Dominion

The main advantage of trading using opposite Microsoft Corp and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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 Microsoft Corp CDR and Toronto Dominion Bank Pref 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.