Correlation Between BMO Covered and RBC Canadian

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

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

Diversification Opportunities for BMO Covered and RBC Canadian

0.45

Correlation Coefficient

BMO Covered  RBC Canadian

Very weak diversification

The 3 months correlation between BMO and RBC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and RBC Canadian Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Canadian Preferred and BMO Covered 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 Covered Call are associated (or correlated) with RBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Canadian Preferred has no effect on the direction of BMO Covered i.e., BMO Covered and RBC Canadian go up and down completely randomly.

Pair Corralation between BMO Covered and RBC Canadian

Assuming the 90 days trading horizon BMO Covered is expected to generate 1.7 times less return on investment than RBC Canadian. In addition to that, BMO Covered is 1.1 times more volatile than RBC Canadian Preferred. It trades about 0.16 of its total potential returns per unit of risk. RBC Canadian Preferred is currently generating about 0.3 per unit of volatility. If you would invest  2,065  in RBC Canadian Preferred on August 31, 2024 and sell it today you would earn a total of  62.00  from holding RBC Canadian Preferred or generate 3.0% return on investment over 90 days.

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

BMO Covered Call  vs.  RBC Canadian Preferred

BMO Covered Call

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Covered is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RBC Canadian Preferred

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Canadian Preferred are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, RBC Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Covered and RBC Canadian

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

The idea behind BMO Covered Call and RBC Canadian Preferred 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.