Correlation Between TD Canadian and TD Active

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

By analyzing existing cross correlation between TD Canadian Equity and TD Active Preferred, you can compare the effects of market volatilities on TD Canadian and TD Active 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 TD Canadian with a short position of TD Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Canadian and TD Active.

Diversification Opportunities for TD Canadian and TD Active

0.99

Correlation Coefficient

TD Canadian  TD Active

No risk reduction

The 3 months correlation between TTP and TPRF is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding TD Canadian Equity and TD Active Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Active Preferred and TD Canadian 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 TD Canadian Equity are associated (or correlated) with TD Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Active Preferred has no effect on the direction of TD Canadian i.e., TD Canadian and TD Active go up and down completely randomly.

Pair Corralation between TD Canadian and TD Active

Assuming the 90 days trading horizon TD Canadian Equity is expected to generate 1.51 times more return on investment than TD Active. However, TD Canadian is 1.51 times more volatile than TD Active Preferred. It trades about 0.5 of its potential returns per unit of risk. TD Active Preferred is currently generating about 0.73 per unit of risk. If you would invest  2,733  in TD Canadian Equity on April 20, 2025 and sell it today you would earn a total of  396.00  from holding TD Canadian Equity or generate 14.49% return on investment over 90 days.

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

TD Canadian Equity  vs.  TD Active Preferred

TD Canadian Equity

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Equity are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Canadian displayed solid returns over the last few months and may actually be approaching a breakup point.

TD Active Preferred

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in TD Active Preferred are ranked lower than 57 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Active displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TD Canadian and TD Active

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

The idea behind TD Canadian Equity and TD Active Preferred 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.