Correlation Between BMO MSCI and Guardian Canadian

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

Diversification Opportunities for BMO MSCI and Guardian Canadian

0.88

Correlation Coefficient

BMO MSCI  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 MSCI All and Guardian Canadian Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian Canadian Sector and BMO MSCI 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 MSCI All 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 Sector has no effect on the direction of BMO MSCI i.e., BMO MSCI and Guardian Canadian go up and down completely randomly.

Pair Corralation between BMO MSCI and Guardian Canadian

Assuming the 90 days trading horizon BMO MSCI is expected to generate 1.05 times less return on investment than Guardian Canadian. In addition to that, BMO MSCI is 1.32 times more volatile than Guardian Canadian Sector. It trades about 0.18 of its total potential returns per unit of risk. Guardian Canadian Sector is currently generating about 0.24 per unit of volatility. If you would invest  2,538  in Guardian Canadian Sector on September 14, 2024 and sell it today you would earn a total of  199.00  from holding Guardian Canadian Sector or generate 7.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

BMO MSCI All  vs.  Guardian Canadian Sector

BMO MSCI All

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI All are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guardian Canadian Sector

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guardian Canadian Sector are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Guardian Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO MSCI and Guardian Canadian

The main advantage of trading using opposite BMO MSCI and Guardian Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI 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 MSCI All and Guardian Canadian Sector 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.