Correlation Between Toronto Dominion and Canadian Tire
Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and Canadian Tire 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 Canadian Tire 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 Canadian Tire, you can compare the effects of market volatilities on Toronto Dominion and Canadian Tire 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 Canadian Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Canadian Tire.
Diversification Opportunities for Toronto Dominion and Canadian Tire
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Toronto and Canadian is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank Pref and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire 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 Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Canadian Tire go up and down completely randomly.
Pair Corralation between Toronto Dominion and Canadian Tire
Assuming the 90 days trading horizon Toronto Dominion Bank Pref is expected to under-perform the Canadian Tire. But the preferred stock apears to be less risky and, when comparing its historical volatility, Toronto Dominion Bank Pref is 3.52 times less risky than Canadian Tire. The preferred stock trades about -0.16 of its potential returns per unit of risk. The Canadian Tire is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 15,206 in Canadian Tire on November 3, 2024 and sell it today you would earn a total of 1,156 from holding Canadian Tire or generate 7.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toronto Dominion Bank Pref vs. Canadian Tire
Performance |
| Timeline |
| Toronto Dominion Bank |
| Canadian Tire |
Toronto Dominion and Canadian Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toronto Dominion and Canadian Tire
The main advantage of trading using opposite Toronto Dominion and Canadian Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toronto Dominion position performs unexpectedly, Canadian Tire 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 Canadian Tire will offset losses from the drop in Canadian Tire's long position.The idea behind Toronto Dominion Bank Pref and Canadian Tire 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.| Canadian Tire vs. Dollarama | Canadian Tire vs. Loblaw Companies Limited | Canadian Tire vs. Restaurant Brands International | Canadian Tire vs. Canadian National Railway |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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