Correlation Between Desjardins Canadian and BMO Laddered

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Can any of the company-specific risk be diversified away by investing in both Desjardins Canadian and BMO Laddered 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 Desjardins Canadian and BMO Laddered into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Desjardins Canadian Preferred and BMO Laddered Preferred, you can compare the effects of market volatilities on Desjardins Canadian and BMO Laddered 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 Desjardins Canadian with a short position of BMO Laddered. Check out your portfolio center. Please also check ongoing floating volatility patterns of Desjardins Canadian and BMO Laddered.

Diversification Opportunities for Desjardins Canadian and BMO Laddered

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Desjardins and BMO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Desjardins Canadian Preferred and BMO Laddered Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Laddered Preferred and Desjardins Canadian 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 Desjardins Canadian Preferred are associated (or correlated) with BMO Laddered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Laddered Preferred has no effect on the direction of Desjardins Canadian i.e., Desjardins Canadian and BMO Laddered go up and down completely randomly.

Pair Corralation between Desjardins Canadian and BMO Laddered

Assuming the 90 days trading horizon Desjardins Canadian is expected to generate 1.06 times less return on investment than BMO Laddered. In addition to that, Desjardins Canadian is 1.21 times more volatile than BMO Laddered Preferred. It trades about 0.12 of its total potential returns per unit of risk. BMO Laddered Preferred is currently generating about 0.15 per unit of volatility. If you would invest  975.00  in BMO Laddered Preferred on September 6, 2024 and sell it today you would earn a total of  91.00  from holding BMO Laddered Preferred or generate 9.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.2%
ValuesDaily Returns

Desjardins Canadian Preferred  vs.  BMO Laddered Preferred

 Performance 
       Timeline  
Desjardins Canadian 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins Canadian Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Desjardins Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
BMO Laddered Preferred 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BMO Laddered Preferred are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Laddered is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Desjardins Canadian and BMO Laddered Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Desjardins Canadian and BMO Laddered

The main advantage of trading using opposite Desjardins Canadian and BMO Laddered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Desjardins Canadian position performs unexpectedly, BMO Laddered 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 BMO Laddered will offset losses from the drop in BMO Laddered's long position.
The idea behind Desjardins Canadian Preferred and BMO Laddered Preferred 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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