Correlation Between TD International and TD Equity
Can any of the company-specific risk be diversified away by investing in both TD International and TD Equity 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 TD International and TD Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TD International Equity and TD Equity Index, you can compare the effects of market volatilities on TD International and TD Equity 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 TD International with a short position of TD Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD International and TD Equity.
Diversification Opportunities for TD International and TD Equity
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between TPE and TPU is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding TD International Equity and TD Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Equity Index and TD International 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 TD International Equity are associated (or correlated) with TD Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Equity Index has no effect on the direction of TD International i.e., TD International and TD Equity go up and down completely randomly.
Pair Corralation between TD International and TD Equity
Assuming the 90 days trading horizon TD International is expected to generate 5.39 times less return on investment than TD Equity. But when comparing it to its historical volatility, TD International Equity is 1.19 times less risky than TD Equity. It trades about 0.08 of its potential returns per unit of risk. TD Equity Index is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 4,493 in TD Equity Index on September 1, 2024 and sell it today you would earn a total of 332.00 from holding TD Equity Index or generate 7.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
TD International Equity vs. TD Equity Index
Performance |
| Timeline |
| TD International Equity |
| TD Equity Index |
TD International and TD Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TD International and TD Equity
The main advantage of trading using opposite TD International and TD Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TD International position performs unexpectedly, TD Equity 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 Equity will offset losses from the drop in TD Equity's long position.| TD International vs. Vanguard FTSE Emerging | TD International vs. Vanguard FTSE Developed | TD International vs. Vanguard Total Market | TD International vs. Vanguard Canadian Aggregate |
| TD Equity vs. BMO SP 500 | TD Equity vs. Vanguard SP 500 | TD Equity vs. iShares Core SP | TD Equity vs. BMO SP 500 |
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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