Correlation Between TD Canadian and BMO MSCI

Can any of the company-specific risk be diversified away by investing in both TD Canadian and BMO MSCI 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 Canadian and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TD Canadian Equity and BMO MSCI EAFE, you can compare the effects of market volatilities on TD Canadian and BMO MSCI 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 Canadian with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD Canadian and BMO MSCI.

Diversification Opportunities for TD Canadian and BMO MSCI

-0.09

Correlation Coefficient

TD Canadian  BMO MSCI

Good diversification

The 3 months correlation between TTP and BMO is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding TD Canadian Equity and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE and TD 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 TD Canadian Equity are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of TD Canadian i.e., TD Canadian and BMO MSCI go up and down completely randomly.

Pair Corralation between TD Canadian and BMO MSCI

Assuming the 90 days trading horizon TD Canadian Equity is expected to generate 1.08 times more return on investment than BMO MSCI. However, TD Canadian is 1.08 times more volatile than BMO MSCI EAFE. It trades about 0.15 of its potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.08 per unit of risk. If you would invest  1,707  in TD Canadian Equity on September 12, 2024 and sell it today you would earn a total of  1,216  from holding TD Canadian Equity or generate 71.24% return on investment over 90 days.

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

TD Canadian Equity  vs.  BMO MSCI EAFE

TD Canadian Equity

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Equity are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO MSCI EAFE

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with TD Canadian and BMO MSCI

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

The idea behind TD Canadian Equity and BMO MSCI EAFE 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .