Correlation Between BMO Low and Desjardins

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

By analyzing existing cross correlation between BMO Low Volatility and Desjardins RI Developed, you can compare the effects of market volatilities on BMO Low and Desjardins 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 Low with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Low and Desjardins.

Diversification Opportunities for BMO Low and Desjardins

0.98

Correlation Coefficient

BMO Low  Desjardins

Almost no diversification

The 3 months correlation between BMO and Desjardins is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and Desjardins RI Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Developed and BMO Low 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 Low Volatility are associated (or correlated) with Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Developed has no effect on the direction of BMO Low i.e., BMO Low and Desjardins go up and down completely randomly.

Pair Corralation between BMO Low and Desjardins

Assuming the 90 days trading horizon BMO Low is expected to generate 1.29 times less return on investment than Desjardins. But when comparing it to its historical volatility, BMO Low Volatility is 1.05 times less risky than Desjardins. It trades about 0.21 of its potential returns per unit of risk. Desjardins RI Developed is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,355  in Desjardins RI Developed on December 30, 2024 and sell it today you would earn a total of  272.00  from holding Desjardins RI Developed or generate 11.55% return on investment over 90 days.

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

BMO Low Volatility  vs.  Desjardins RI Developed

BMO Low Volatility

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Low Volatility are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, BMO Low may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Desjardins RI Developed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Developed are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Desjardins may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BMO Low and Desjardins

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

The idea behind BMO Low Volatility and Desjardins RI Developed 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.