Correlation Between Toronto Dominion and IA Financial
Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and IA Financial 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 IA Financial 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 iA Financial, you can compare the effects of market volatilities on Toronto Dominion and IA Financial 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 IA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and IA Financial.
Diversification Opportunities for Toronto Dominion and IA Financial
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Toronto and IAG is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and iA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iA Financial 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 IA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iA Financial has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and IA Financial go up and down completely randomly.
Pair Corralation between Toronto Dominion and IA Financial
Assuming the 90 days trading horizon Toronto Dominion is expected to generate 9.67 times less return on investment than IA Financial. But when comparing it to its historical volatility, Toronto Dominion Bank is 16.48 times less risky than IA Financial. It trades about 0.34 of its potential returns per unit of risk. iA Financial is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 11,377 in iA Financial on August 28, 2024 and sell it today you would earn a total of 1,764 from holding iA Financial or generate 15.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 77.27% |
| Values | Daily Returns |
Toronto Dominion Bank vs. iA Financial
Performance |
| Timeline |
| Toronto Dominion Bank |
| iA Financial |
Toronto Dominion and IA Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toronto Dominion and IA Financial
The main advantage of trading using opposite Toronto Dominion and IA Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toronto Dominion position performs unexpectedly, IA Financial 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 IA Financial will offset losses from the drop in IA Financial's long position.| Toronto Dominion vs. Forstrong Global Income | Toronto Dominion vs. BMO Aggregate Bond | Toronto Dominion vs. Terreno Resources Corp | Toronto Dominion vs. iShares Canadian HYBrid |
| IA Financial vs. Great West Lifeco | IA Financial vs. Intact Financial | IA Financial vs. IGM Financial | IA Financial vs. Sun Life Financial |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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