Correlation Between BMO Global and CIBC Canadian

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

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

Diversification Opportunities for BMO Global and CIBC Canadian

0.94

Correlation Coefficient

BMO Global  CIBC Canadian

Almost no diversification

The 3 months correlation between BMO and CIBC is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding BMO Global Consumer and CIBC Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIBC Canadian Equity and BMO 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 BMO Global Consumer are associated (or correlated) with CIBC Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIBC Canadian Equity has no effect on the direction of BMO Global i.e., BMO Global and CIBC Canadian go up and down completely randomly.

Pair Corralation between BMO Global and CIBC Canadian

Assuming the 90 days trading horizon BMO Global Consumer is expected to generate 1.51 times more return on investment than CIBC Canadian. However, BMO Global is 1.51 times more volatile than CIBC Canadian Equity. It trades about 0.25 of its potential returns per unit of risk. CIBC Canadian Equity is currently generating about 0.33 per unit of risk. If you would invest  3,760  in BMO Global Consumer on September 4, 2024 and sell it today you would earn a total of  548.00  from holding BMO Global Consumer or generate 14.57% return on investment over 90 days.

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

BMO Global Consumer  vs.  CIBC Canadian Equity

BMO Global Consumer

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Consumer are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Global displayed solid returns over the last few months and may actually be approaching a breakup point.

CIBC Canadian Equity

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CIBC Canadian Equity are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CIBC Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Global and CIBC Canadian

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

The idea behind BMO Global Consumer and CIBC Canadian Equity 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 Anywhere module to track or share privately all of your investments from the convenience of any device.