Correlation Between BMO Mid and TD Canadian

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

By analyzing existing cross correlation between BMO Mid Provincial and TD Canadian Aggregate, you can compare the effects of market volatilities on BMO Mid and TD 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 TD Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and TD Canadian.

Diversification Opportunities for BMO Mid and TD Canadian

0.93

Correlation Coefficient

BMO Mid  TD Canadian

Almost no diversification

The 3 months correlation between BMO and TDB is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Provincial and TD Canadian Aggregate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Canadian Aggregate 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 Provincial are associated (or correlated) with TD Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Canadian Aggregate has no effect on the direction of BMO Mid i.e., BMO Mid and TD Canadian go up and down completely randomly.

Pair Corralation between BMO Mid and TD Canadian

Assuming the 90 days trading horizon BMO Mid Provincial is expected to under-perform the TD Canadian. In addition to that, BMO Mid is 1.05 times more volatile than TD Canadian Aggregate. It trades about -0.04 of its total potential returns per unit of risk. TD Canadian Aggregate is currently generating about 0.0 per unit of volatility. If you would invest  1,319  in TD Canadian Aggregate on September 15, 2024 and sell it today you would lose (1.00) from holding TD Canadian Aggregate or give up 0.08% of portfolio value over 90 days.

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

BMO Mid Provincial  vs.  TD Canadian Aggregate

BMO Mid Provincial

Risk-Adjusted Performance

0 of 100

Very Weak

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

TD Canadian Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TD Canadian Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, TD 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 TD Canadian

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

The idea behind BMO Mid Provincial and TD Canadian Aggregate 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.