Correlation Between BMO High and Desjardins
Can any of the company-specific risk be diversified away by investing in both BMO High 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 High and Desjardins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO High Yield and Desjardins RI Active, you can compare the effects of market volatilities on BMO High 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 High with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and Desjardins.
Diversification Opportunities for BMO High and Desjardins
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and Desjardins is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Yield 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 High 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 High Yield 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 High i.e., BMO High and Desjardins go up and down completely randomly.
Pair Corralation between BMO High and Desjardins
Assuming the 90 days trading horizon BMO High Yield is expected to generate 0.84 times more return on investment than Desjardins. However, BMO High Yield is 1.19 times less risky than Desjardins. It trades about 0.09 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 1,115 in BMO High Yield on September 7, 2024 and sell it today you would earn a total of 20.00 from holding BMO High Yield or generate 1.79% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
BMO High Yield vs. Desjardins RI Active
Performance |
Timeline |
BMO High Yield |
Desjardins RI Active |
BMO High and Desjardins Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BMO High and Desjardins
The main advantage of trading using opposite BMO High and Desjardins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO High 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 High vs. BMO Mid Federal | BMO High vs. BMO Short Corporate | BMO High vs. BMO Emerging Markets | BMO High vs. BMO Long Corporate |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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