Correlation Between BMO Core and Guardian Canadian

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

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

Diversification Opportunities for BMO Core and Guardian Canadian

0.88

Correlation Coefficient

BMO Core  Guardian Canadian

Very poor diversification

The 3 months correlation between BMO and Guardian is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BMO Core Plus and Guardian Canadian Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian Canadian Bond and BMO Core 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 Core Plus are associated (or correlated) with Guardian Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guardian Canadian Bond has no effect on the direction of BMO Core i.e., BMO Core and Guardian Canadian go up and down completely randomly.

Pair Corralation between BMO Core and Guardian Canadian

Assuming the 90 days trading horizon BMO Core is expected to generate 1.36 times less return on investment than Guardian Canadian. But when comparing it to its historical volatility, BMO Core Plus is 1.07 times less risky than Guardian Canadian. It trades about 0.07 of its potential returns per unit of risk. Guardian Canadian Bond is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,816  in Guardian Canadian Bond on December 29, 2024 and sell it today you would earn a total of  40.00  from holding Guardian Canadian Bond or generate 2.2% return on investment over 90 days.

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

BMO Core Plus  vs.  Guardian Canadian Bond

BMO Core Plus

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Core Plus are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Core is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Guardian Canadian Bond

Risk-Adjusted Performance

OK

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

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

The idea behind BMO Core Plus and Guardian Canadian Bond 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.