Correlation Between BMO Aggregate and CI Canadian

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

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

Diversification Opportunities for BMO Aggregate and CI Canadian

0.81

Correlation Coefficient

BMO Aggregate  CI Canadian

Very poor diversification

The 3 months correlation between BMO and CAGS is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and CI Canadian Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI Canadian Short and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with CI Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI Canadian Short has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and CI Canadian go up and down completely randomly.

Pair Corralation between BMO Aggregate and CI Canadian

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 1.2 times less return on investment than CI Canadian. In addition to that, BMO Aggregate is 2.64 times more volatile than CI Canadian Short Term. It trades about 0.04 of its total potential returns per unit of risk. CI Canadian Short Term is currently generating about 0.12 per unit of volatility. If you would invest  4,297  in CI Canadian Short Term on October 4, 2024 and sell it today you would earn a total of  443.00  from holding CI Canadian Short Term or generate 10.31% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  CI Canadian Short Term

BMO Aggregate Bond

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CI Canadian Short

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CI Canadian Short Term are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CI 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 BMO Aggregate and CI Canadian

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

The idea behind BMO Aggregate Bond and CI Canadian Short Term 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.