Correlation Between BMO Mid and Descartes Systems

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

By analyzing existing cross correlation between BMO Mid Term IG and Descartes Systems Group, you can compare the effects of market volatilities on BMO Mid and Descartes Systems 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 Descartes Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and Descartes Systems.

Diversification Opportunities for BMO Mid and Descartes Systems

0.65

Correlation Coefficient

BMO Mid  Descartes Systems

Poor diversification

The 3 months correlation between BMO and Descartes is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Term IG and Descartes Systems Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Descartes Systems 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 Term IG are associated (or correlated) with Descartes Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Descartes Systems has no effect on the direction of BMO Mid i.e., BMO Mid and Descartes Systems go up and down completely randomly.

Pair Corralation between BMO Mid and Descartes Systems

Assuming the 90 days trading horizon BMO Mid is expected to generate 7.02 times less return on investment than Descartes Systems. But when comparing it to its historical volatility, BMO Mid Term IG is 4.78 times less risky than Descartes Systems. It trades about 0.15 of its potential returns per unit of risk. Descartes Systems Group is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  13,505  in Descartes Systems Group on August 31, 2024 and sell it today you would earn a total of  2,969  from holding Descartes Systems Group or generate 21.98% return on investment over 90 days.

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

BMO Mid Term IG  vs.  Descartes Systems Group

BMO Mid Term

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Mid Term IG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Mid is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Descartes Systems

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Descartes Systems Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Descartes Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Mid and Descartes Systems

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

The idea behind BMO Mid Term IG and Descartes Systems Group 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.