Correlation Between BMO SP and TD Active

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

By analyzing existing cross correlation between BMO SP 500 and TD Active Enhanced, you can compare the effects of market volatilities on BMO SP and TD Active 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 SP with a short position of TD Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and TD Active.

Diversification Opportunities for BMO SP and TD Active

1.0

Correlation Coefficient

BMO SP  TD Active

No risk reduction

The 3 months correlation between BMO and TUED is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and TD Active Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Active Enhanced and BMO SP 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 SP 500 are associated (or correlated) with TD Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Active Enhanced has no effect on the direction of BMO SP i.e., BMO SP and TD Active go up and down completely randomly.

Pair Corralation between BMO SP and TD Active

Assuming the 90 days trading horizon BMO SP is expected to generate 1.13 times less return on investment than TD Active. But when comparing it to its historical volatility, BMO SP 500 is 1.2 times less risky than TD Active. It trades about 0.36 of its potential returns per unit of risk. TD Active Enhanced is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  2,912  in TD Active Enhanced on September 5, 2024 and sell it today you would earn a total of  239.00  from holding TD Active Enhanced or generate 8.21% return on investment over 90 days.

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

BMO SP 500  vs.  TD Active Enhanced

BMO SP 500

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SP displayed solid returns over the last few months and may actually be approaching a breakup point.

TD Active Enhanced

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Active Enhanced are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Active displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SP and TD Active

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

The idea behind BMO SP 500 and TD Active Enhanced 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.