Correlation Between CI Global and BMO Canadian

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

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

Diversification Opportunities for CI Global and BMO Canadian

0.8

Correlation Coefficient

CI Global  BMO Canadian

Very poor diversification

The 3 months correlation between CLML and BMO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding CI Global Climate and BMO Canadian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian Bank and CI Global 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 CI Global Climate are associated (or correlated) with BMO Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian Bank has no effect on the direction of CI Global i.e., CI Global and BMO Canadian go up and down completely randomly.

Pair Corralation between CI Global and BMO Canadian

Assuming the 90 days trading horizon CI Global Climate is expected to under-perform the BMO Canadian. In addition to that, CI Global is 11.27 times more volatile than BMO Canadian Bank. It trades about -0.11 of its total potential returns per unit of risk. BMO Canadian Bank is currently generating about 0.45 per unit of volatility. If you would invest  3,018  in BMO Canadian Bank on September 23, 2024 and sell it today you would earn a total of  28.00  from holding BMO Canadian Bank or generate 0.93% return on investment over 90 days.

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

CI Global Climate  vs.  BMO Canadian Bank

CI Global Climate

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CI Global Climate are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CI Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO Canadian Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO 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 CI Global and BMO Canadian

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

The idea behind CI Global Climate and BMO Canadian Bank 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.