Correlation Between CDSPI Petite and BMO Aggregate

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

By analyzing existing cross correlation between CDSPI petite cap and BMO Aggregate Bond, you can compare the effects of market volatilities on CDSPI Petite and BMO Aggregate 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 CDSPI Petite with a short position of BMO Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDSPI Petite and BMO Aggregate.

Diversification Opportunities for CDSPI Petite and BMO Aggregate

0.2

Correlation Coefficient

CDSPI Petite  BMO Aggregate

Modest diversification

The 3 months correlation between CDSPI and BMO is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding CDSPI petite cap and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond and CDSPI Petite 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 CDSPI petite cap are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of CDSPI Petite i.e., CDSPI Petite and BMO Aggregate go up and down completely randomly.

Pair Corralation between CDSPI Petite and BMO Aggregate

Assuming the 90 days trading horizon CDSPI petite cap is expected to under-perform the BMO Aggregate. In addition to that, CDSPI Petite is 3.84 times more volatile than BMO Aggregate Bond. It trades about -0.16 of its total potential returns per unit of risk. BMO Aggregate Bond is currently generating about -0.48 per unit of volatility. If you would invest  3,036  in BMO Aggregate Bond on October 11, 2024 and sell it today you would lose (72.00) from holding BMO Aggregate Bond or give up 2.37% of portfolio value over 90 days.

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

CDSPI petite cap  vs.  BMO Aggregate Bond

CDSPI petite cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CDSPI petite cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, CDSPI Petite may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CDSPI Petite and BMO Aggregate

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

The idea behind CDSPI petite cap and BMO Aggregate Bond 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.