Correlation Between BMO Aggregate and Desjardins

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

By analyzing existing cross correlation between BMO Aggregate Bond and Desjardins RI Active, you can compare the effects of market volatilities on BMO Aggregate and Desjardins 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 BMO Aggregate with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and Desjardins.

Diversification Opportunities for BMO Aggregate and Desjardins

0.91

Correlation Coefficient

BMO Aggregate  Desjardins

Almost no diversification

The 3 months correlation between BMO and Desjardins is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Desjardins RI Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Active and BMO Aggregate 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 BMO Aggregate Bond are associated (or correlated) with Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Active has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Desjardins go up and down completely randomly.

Pair Corralation between BMO Aggregate and Desjardins

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 2.11 times less return on investment than Desjardins. But when comparing it to its historical volatility, BMO Aggregate Bond is 1.1 times less risky than Desjardins. It trades about 0.04 of its potential returns per unit of risk. Desjardins RI Active is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,874  in Desjardins RI Active on September 5, 2024 and sell it today you would earn a total of  38.00  from holding Desjardins RI Active or generate 2.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

BMO Aggregate Bond  vs.  Desjardins RI Active

BMO Aggregate Bond

Risk-Adjusted Performance

3 of 100

Insignificant

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

Desjardins RI Active

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Active are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Desjardins is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Aggregate and Desjardins

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

The idea behind BMO Aggregate Bond and Desjardins RI Active 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 Commodity Directory module to find actively traded commodities issued by global exchanges.