Correlation Between Wells Fargo and Toronto Dominion

Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Toronto Dominion 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 Wells Fargo and Toronto Dominion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wells Fargo and Toronto Dominion Bank, you can compare the effects of market volatilities on Wells Fargo and Toronto Dominion 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 Wells Fargo with a short position of Toronto Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Toronto Dominion.

Diversification Opportunities for Wells Fargo and Toronto Dominion

-0.14

Correlation Coefficient

Wells Fargo  Toronto Dominion

Good diversification

The 3 months correlation between Wells and Toronto is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Toronto Dominion Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toronto Dominion Bank and Wells Fargo 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 Wells Fargo are associated (or correlated) with Toronto Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toronto Dominion Bank has no effect on the direction of Wells Fargo i.e., Wells Fargo and Toronto Dominion go up and down completely randomly.

Pair Corralation between Wells Fargo and Toronto Dominion

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.15 times more return on investment than Toronto Dominion. However, Wells Fargo is 1.15 times more volatile than Toronto Dominion Bank. It trades about 0.17 of its potential returns per unit of risk. Toronto Dominion Bank is currently generating about 0.0 per unit of risk. If you would invest  5,761  in Wells Fargo on January 30, 2024 and sell it today you would earn a total of  230.00  from holding Wells Fargo or generate 3.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Wells Fargo  vs.  Toronto Dominion Bank

Wells Fargo

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Toronto Dominion Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toronto Dominion Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Toronto Dominion is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Wells Fargo and Toronto Dominion

The main advantage of trading using opposite Wells Fargo and Toronto Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Toronto Dominion 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 Toronto Dominion will offset losses from the drop in Toronto Dominion's long position.

The idea behind Wells Fargo and Toronto Dominion Bank 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.