Correlation Between BMO Long and CIBC Canadian

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

Diversification Opportunities for BMO Long and CIBC Canadian

0.24

Correlation Coefficient

BMO Long  CIBC Canadian

Modest diversification

The 3 months correlation between BMO and CIBC is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Federal 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 Long 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 Long Federal 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 Long i.e., BMO Long and CIBC Canadian go up and down completely randomly.

Pair Corralation between BMO Long and CIBC Canadian

Assuming the 90 days trading horizon BMO Long is expected to generate 2.19 times less return on investment than CIBC Canadian. In addition to that, BMO Long is 1.11 times more volatile than CIBC Canadian Equity. It trades about 0.03 of its total potential returns per unit of risk. CIBC Canadian Equity is currently generating about 0.06 per unit of volatility. 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 Weak
Accuracy	100.0%
Values	Daily Returns

BMO Long Federal  vs.  CIBC Canadian Equity

BMO Long Federal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Federal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, BMO Long is not utilizing all of its potentials. The latest 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 Long and CIBC Canadian

The main advantage of trading using opposite BMO Long and CIBC Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long 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 Long Federal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.