Correlation Between BMO Short and Desjardins
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
BMO Short Corporate vs. Desjardins RI Active
Performance |
Timeline |
BMO Short Corporate |
Desjardins RI Active |
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.BMO Short vs. BMO Long Federal | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate | BMO Short vs. BMO High Yield |
Desjardins vs. Desjardins RI Canada | Desjardins vs. Desjardins RI USA | Desjardins vs. Desjardins Canadian Preferred | Desjardins vs. Desjardins Canadian Universe |
Check out your portfolio center.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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