Correlation Between BMO Mid and Guardian Canadian

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

Diversification Opportunities for BMO Mid and Guardian Canadian

0.83

Correlation Coefficient

BMO Mid  Guardian Canadian

Very poor diversification

The 3 months correlation between BMO and Guardian is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Federal 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 Mid 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 Mid Federal 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 Mid i.e., BMO Mid and Guardian Canadian go up and down completely randomly.

Pair Corralation between BMO Mid and Guardian Canadian

Assuming the 90 days trading horizon BMO Mid Federal is expected to under-perform the Guardian Canadian. But the etf apears to be less risky and, when comparing its historical volatility, BMO Mid Federal is 1.04 times less risky than Guardian Canadian. The etf trades about -0.06 of its potential returns per unit of risk. The Guardian Canadian Bond is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,854  in Guardian Canadian Bond on September 15, 2024 and sell it today you would earn a total of  3.00  from holding Guardian Canadian Bond or generate 0.16% return on investment over 90 days.

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

BMO Mid Federal  vs.  Guardian Canadian Bond

BMO Mid Federal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guardian Canadian Bond

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Guardian Canadian Bond has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Mid and Guardian Canadian

The main advantage of trading using opposite BMO Mid and Guardian Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid 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 Mid Federal 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.