Correlation Between Toronto Dominion and Bank of America
Can any of the company-specific risk be diversified away by investing in both Toronto Dominion and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Toronto Dominion and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toronto Dominion and Bank of America.
Diversification Opportunities for Toronto Dominion and Bank of America
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Toronto and Bank is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Toronto Dominion Bank and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Toronto Dominion i.e., Toronto Dominion and Bank of America go up and down completely randomly.
Pair Corralation between Toronto Dominion and Bank of America
Allowing for the 90-day total investment horizon Toronto Dominion is expected to generate 1.18 times less return on investment than Bank of America. In addition to that, Toronto Dominion is 1.37 times more volatile than Bank of America. It trades about 0.03 of its total potential returns per unit of risk. Bank of America is currently generating about 0.05 per unit of volatility. If you would invest 1,798 in Bank of America on August 24, 2024 and sell it today you would earn a total of 78.00 from holding Bank of America or generate 4.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toronto Dominion Bank vs. Bank of America
Performance |
| Timeline |
| Toronto Dominion Bank |
| Bank of America |
Toronto Dominion and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toronto Dominion and Bank of America
The main advantage of trading using opposite Toronto Dominion and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toronto Dominion position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Toronto Dominion vs. Bank of Montreal | Toronto Dominion vs. Canadian Imperial Bank | Toronto Dominion vs. Bank of Nova | Toronto Dominion vs. JPMorgan Chase Co |
| Bank of America vs. Bank of America | Bank of America vs. JPMorgan Chase Co | Bank of America vs. Wells Fargo | Bank of America vs. JPMorgan Chase Co |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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