Correlation Between BMO Short and Desjardins

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

Diversification Opportunities for BMO Short and Desjardins

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between BMO and Desjardins is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate 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 Short 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 Short Corporate 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 Short i.e., BMO Short and Desjardins go up and down completely randomly.

Pair Corralation between BMO Short and Desjardins

Assuming the 90 days trading horizon BMO Short Corporate is expected to generate 0.4 times more return on investment than Desjardins. However, BMO Short Corporate is 2.52 times less risky than Desjardins. It trades about 0.17 of its potential returns per unit of risk. Desjardins RI Active is currently generating about 0.06 per unit of risk. If you would invest  1,372  in BMO Short Corporate on September 10, 2024 and sell it today you would earn a total of  22.00  from holding BMO Short Corporate or generate 1.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

BMO Short Corporate  vs.  Desjardins RI Active

 Performance 
       Timeline  
BMO Short Corporate 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Corporate are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short 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

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Active are ranked lower than 4 (%) 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.

BMO Short and Desjardins Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BMO Short and Desjardins

The main advantage of trading using opposite BMO Short and Desjardins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short 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 Short Corporate 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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