Correlation Between BMO Long and TD Canadian

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

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

Diversification Opportunities for BMO Long and TD Canadian

-0.6

Correlation Coefficient

BMO Long  TD Canadian

Excellent diversification

The 3 months correlation between BMO and TTP is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Federal and TD Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Equity and BMO Long 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 Long Federal are associated (or correlated) with TD Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Canadian Equity has no effect on the direction of BMO Long i.e., BMO Long and TD Canadian go up and down completely randomly.

Pair Corralation between BMO Long and TD Canadian

Assuming the 90 days trading horizon BMO Long is expected to generate 7.16 times less return on investment than TD Canadian. In addition to that, BMO Long is 1.57 times more volatile than TD Canadian Equity. It trades about 0.03 of its total potential returns per unit of risk. TD Canadian Equity is currently generating about 0.36 per unit of volatility. If you would invest  2,620  in TD Canadian Equity on September 3, 2024 and sell it today you would earn a total of  318.00  from holding TD Canadian Equity or generate 12.14% return on investment over 90 days.

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

BMO Long Federal  vs.  TD Canadian Equity

BMO Long Federal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Federal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, BMO Long is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

TD Canadian Equity

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in TD Canadian Equity are ranked lower than 28 (%) 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.

Pair Trading with BMO Long and TD Canadian

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

The idea behind BMO Long Federal and TD Canadian Equity 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.