Correlation Between BMO Dow and Desjardins

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

By analyzing existing cross correlation between BMO Dow Jones and Desjardins RI Canada, you can compare the effects of market volatilities on BMO Dow and Desjardins 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 Dow with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Dow and Desjardins.

Diversification Opportunities for BMO Dow and Desjardins

0.8

Correlation Coefficient

BMO Dow  Desjardins

Very poor diversification

The 3 months correlation between BMO and Desjardins is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Dow Jones and Desjardins RI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Canada and BMO Dow 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 Dow Jones are associated (or correlated) with Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Canada has no effect on the direction of BMO Dow i.e., BMO Dow and Desjardins go up and down completely randomly.

Pair Corralation between BMO Dow and Desjardins

Assuming the 90 days trading horizon BMO Dow Jones is expected to under-perform the Desjardins. In addition to that, BMO Dow is 1.04 times more volatile than Desjardins RI Canada. It trades about -0.04 of its total potential returns per unit of risk. Desjardins RI Canada is currently generating about 0.03 per unit of volatility. If you would invest  3,217  in Desjardins RI Canada on December 30, 2024 and sell it today you would earn a total of  44.00  from holding Desjardins RI Canada or generate 1.37% return on investment over 90 days.

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

BMO Dow Jones  vs.  Desjardins RI Canada

BMO Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking indicators, BMO Dow is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Desjardins RI Canada

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Canada are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Desjardins 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 Dow and Desjardins

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

The idea behind BMO Dow Jones and Desjardins RI Canada 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.