Correlation Between BMO SPTSX and TD Canadian

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

By analyzing existing cross correlation between BMO SPTSX Equal and TD Canadian Long, you can compare the effects of market volatilities on BMO SPTSX and TD 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 TD Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and TD Canadian.

Diversification Opportunities for BMO SPTSX and TD Canadian

-0.15

Correlation Coefficient

BMO SPTSX  TD Canadian

Good diversification

The 3 months correlation between BMO and TCLB is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and TD Canadian Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Long 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 Equal are associated (or correlated) with TD Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Canadian Long has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and TD Canadian go up and down completely randomly.

Pair Corralation between BMO SPTSX and TD Canadian

Assuming the 90 days trading horizon BMO SPTSX Equal is expected to generate 0.44 times more return on investment than TD Canadian. However, BMO SPTSX Equal is 2.25 times less risky than TD Canadian. It trades about 0.51 of its potential returns per unit of risk. TD Canadian Long is currently generating about 0.09 per unit of risk. If you would invest  4,162  in BMO SPTSX Equal on September 13, 2024 and sell it today you would earn a total of  156.00  from holding BMO SPTSX Equal or generate 3.75% return on investment over 90 days.

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

BMO SPTSX Equal  vs.  TD Canadian Long

BMO SPTSX Equal

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Equal are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, BMO SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TD Canadian Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TD Canadian Long has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, TD 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 SPTSX and TD Canadian

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

The idea behind BMO SPTSX Equal and TD Canadian Long 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.