Correlation Between RBC Quant and BMO Real

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

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

Diversification Opportunities for RBC Quant and BMO Real

0.62

Correlation Coefficient

RBC Quant  BMO Real

Poor diversification

The 3 months correlation between RBC and BMO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding RBC Quant Emerging and BMO Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Real Return and RBC Quant 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 RBC Quant Emerging are associated (or correlated) with BMO Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Real Return has no effect on the direction of RBC Quant i.e., RBC Quant and BMO Real go up and down completely randomly.

Pair Corralation between RBC Quant and BMO Real

Assuming the 90 days trading horizon RBC Quant Emerging is expected to generate 1.26 times more return on investment than BMO Real. However, RBC Quant is 1.26 times more volatile than BMO Real Return. It trades about 0.15 of its potential returns per unit of risk. BMO Real Return is currently generating about 0.09 per unit of risk. If you would invest  2,097  in RBC Quant Emerging on December 1, 2024 and sell it today you would earn a total of  140.00  from holding RBC Quant Emerging or generate 6.68% return on investment over 90 days.

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

RBC Quant Emerging  vs.  BMO Real Return

RBC Quant Emerging

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Quant Emerging are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, RBC Quant may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BMO Real Return

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Real Return are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Real is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with RBC Quant and BMO Real

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

The idea behind RBC Quant Emerging and BMO Real Return 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.