Correlation Between BMO SPTSX and CIBC Qx

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

Diversification Opportunities for BMO SPTSX and CIBC Qx

0.84

Correlation Coefficient

BMO SPTSX  CIBC Qx

Very poor diversification

The 3 months correlation between BMO and CIBC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped and CIBC Qx Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIBC Qx Low 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 Qx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIBC Qx Low has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and CIBC Qx go up and down completely randomly.

Pair Corralation between BMO SPTSX and CIBC Qx

Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.22 times less return on investment than CIBC Qx. But when comparing it to its historical volatility, BMO SPTSX Capped is 2.08 times less risky than CIBC Qx. It trades about 0.37 of its potential returns per unit of risk. CIBC Qx Low is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,152  in CIBC Qx Low on September 3, 2024 and sell it today you would earn a total of  313.00  from holding CIBC Qx Low or generate 14.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

BMO SPTSX Capped  vs.  CIBC Qx Low

BMO SPTSX Capped

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Capped are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CIBC Qx Low

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CIBC Qx Low are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, CIBC Qx exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SPTSX and CIBC Qx

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

The idea behind BMO SPTSX Capped and CIBC Qx Low 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 Global Correlations module to find global opportunities by holding instruments from different markets.