Correlation Between Canadian Utilities and BMO Aggregate

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

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

Diversification Opportunities for Canadian Utilities and BMO Aggregate

-0.28

Correlation Coefficient

Canadian Utilities  BMO Aggregate

Very good diversification

The 3 months correlation between Canadian and BMO is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Ltd 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 Canadian Utilities 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 Canadian Utilities Ltd 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 Canadian Utilities i.e., Canadian Utilities and BMO Aggregate go up and down completely randomly.

Pair Corralation between Canadian Utilities and BMO Aggregate

Assuming the 90 days trading horizon Canadian Utilities Ltd is expected to under-perform the BMO Aggregate. But the preferred stock apears to be less risky and, when comparing its historical volatility, Canadian Utilities Ltd is 1.03 times less risky than BMO Aggregate. The preferred stock trades about -0.01 of its potential returns per unit of risk. The BMO Aggregate Bond is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,983  in BMO Aggregate Bond on December 23, 2024 and sell it today you would earn a total of  60.00  from holding BMO Aggregate Bond or generate 2.01% return on investment over 90 days.

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

Canadian Utilities Ltd  vs.  BMO Aggregate Bond

Canadian Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Utilities Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

BMO Aggregate Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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 Canadian Utilities and BMO Aggregate

The main advantage of trading using opposite Canadian Utilities and BMO Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Ltd 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.