Correlation Between BMO SPTSX and CIBC Canadian

Can any of the company-specific risk be diversified away by investing in both BMO SPTSX 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 SPTSX 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 SPTSX Capped and CIBC Canadian Equity, you can compare the effects of market volatilities on BMO SPTSX 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 SPTSX with a short position of CIBC Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and CIBC Canadian.

Diversification Opportunities for BMO SPTSX and CIBC Canadian

1.0

Correlation Coefficient

BMO SPTSX  CIBC Canadian

No risk reduction

The 3 months correlation between BMO and CIBC is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped 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 SPTSX 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 SPTSX Capped 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 SPTSX i.e., BMO SPTSX and CIBC Canadian go up and down completely randomly.

Pair Corralation between BMO SPTSX and CIBC Canadian

Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.04 times less return on investment than CIBC Canadian. But when comparing it to its historical volatility, BMO SPTSX Capped is 1.03 times less risky than CIBC Canadian. It trades about 0.06 of its potential returns per unit of risk. CIBC Canadian Equity is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,671  in CIBC Canadian Equity on December 28, 2024 and sell it today you would earn a total of  78.00  from holding CIBC Canadian Equity or generate 2.92% return on investment over 90 days.

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

BMO SPTSX Capped  vs.  CIBC Canadian Equity

BMO SPTSX Capped

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Capped are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CIBC Canadian Equity

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CIBC Canadian Equity are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CIBC Canadian is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO SPTSX and CIBC Canadian

The main advantage of trading using opposite BMO SPTSX and CIBC Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX 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 SPTSX Capped 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.