Correlation Between Dow Jones and TD Select
Can any of the company-specific risk be diversified away by investing in both Dow Jones and TD Select 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 Dow Jones and TD Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and TD Select Short, you can compare the effects of market volatilities on Dow Jones and TD Select 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 Dow Jones with a short position of TD Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and TD Select.
Diversification Opportunities for Dow Jones and TD Select
Poor diversification
The 3 months correlation between Dow and TCSB is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and TD Select Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Select Short and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with TD Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Select Short has no effect on the direction of Dow Jones i.e., Dow Jones and TD Select go up and down completely randomly.
Pair Corralation between Dow Jones and TD Select
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 3.49 times more return on investment than TD Select. However, Dow Jones is 3.49 times more volatile than TD Select Short. It trades about 0.08 of its potential returns per unit of risk. TD Select Short is currently generating about 0.13 per unit of risk. If you would invest 3,324,156 in Dow Jones Industrial on September 14, 2024 and sell it today you would earn a total of 1,067,256 from holding Dow Jones Industrial or generate 32.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. TD Select Short
Performance |
| Timeline |
Dow Jones and TD Select Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
TD Select Short
Pair trading matchups for TD Select
Pair Trading with Dow Jones and TD Select
The main advantage of trading using opposite Dow Jones and TD Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, TD Select 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 Select will offset losses from the drop in TD Select's long position.| Dow Jones vs. Hurco Companies | Dow Jones vs. Tyson Foods | Dow Jones vs. MYR Group | Dow Jones vs. Cannae Holdings |
| TD Select vs. iShares Canadian Universe | TD Select vs. iShares Canadian Real | TD Select vs. iShares Core Canadian | TD Select vs. iShares Core Canadian |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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