Correlation Between BMO Ultra and CIBC Active

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

By analyzing existing cross correlation between BMO Ultra Short Term and CIBC Active Investment, you can compare the effects of market volatilities on BMO Ultra and CIBC Active 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 Ultra with a short position of CIBC Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Ultra and CIBC Active.

Diversification Opportunities for BMO Ultra and CIBC Active

0.98

Correlation Coefficient

BMO Ultra  CIBC Active

Almost no diversification

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

Pair Corralation between BMO Ultra and CIBC Active

Assuming the 90 days trading horizon BMO Ultra Short Term is expected to generate 0.21 times more return on investment than CIBC Active. However, BMO Ultra Short Term is 4.69 times less risky than CIBC Active. It trades about 0.67 of its potential returns per unit of risk. CIBC Active Investment is currently generating about 0.05 per unit of risk. If you would invest  4,884  in BMO Ultra Short Term on October 11, 2024 and sell it today you would earn a total of  15.00  from holding BMO Ultra Short Term or generate 0.31% return on investment over 90 days.

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

BMO Ultra Short Term  vs.  CIBC Active Investment

BMO Ultra Short

Risk-Adjusted Performance

54 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Ultra Short Term are ranked lower than 54 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Ultra is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CIBC Active Investment

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CIBC Active Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CIBC Active 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 Ultra and CIBC Active

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

The idea behind BMO Ultra Short Term and CIBC Active Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.