Correlation Between Toronto Dominion and Air Canada
Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and Air Canada 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 Air Canada 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 Air Canada, you can compare the effects of market volatilities on Toronto Dominion and Air Canada 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 Air Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Air Canada.
Diversification Opportunities for Toronto Dominion and Air Canada
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Toronto and Air is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank Pref and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada 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 Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Air Canada go up and down completely randomly.
Pair Corralation between Toronto Dominion and Air Canada
Assuming the 90 days trading horizon Toronto Dominion is expected to generate 27.87 times less return on investment than Air Canada. But when comparing it to its historical volatility, Toronto Dominion Bank Pref is 10.47 times less risky than Air Canada. It trades about 0.13 of its potential returns per unit of risk. Air Canada is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 1,925 in Air Canada on August 29, 2024 and sell it today you would earn a total of 543.00 from holding Air Canada or generate 28.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toronto Dominion Bank Pref vs. Air Canada
Performance |
| Timeline |
| Toronto Dominion Bank |
| Air Canada |
Toronto Dominion and Air Canada Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toronto Dominion and Air Canada
The main advantage of trading using opposite Toronto Dominion and Air Canada positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toronto Dominion position performs unexpectedly, Air Canada 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 Air Canada will offset losses from the drop in Air Canada's long position.The idea behind Toronto Dominion Bank Pref and Air Canada 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.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
Other Complementary Tools
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Bonds Directory Find actively traded corporate debentures issued by US companies |