Correlation Between BMO Aggregate and CDSPI Petite

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

By analyzing existing cross correlation between BMO Aggregate Bond and CDSPI petite cap, you can compare the effects of market volatilities on BMO Aggregate and CDSPI Petite 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 Aggregate with a short position of CDSPI Petite. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and CDSPI Petite.

Diversification Opportunities for BMO Aggregate and CDSPI Petite

0.11

Correlation Coefficient

BMO Aggregate  CDSPI Petite

Average diversification

The 3 months correlation between BMO and CDSPI is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and CDSPI petite cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDSPI petite cap and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with CDSPI Petite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDSPI petite cap has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and CDSPI Petite go up and down completely randomly.

Pair Corralation between BMO Aggregate and CDSPI Petite

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the CDSPI Petite. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 4.56 times less risky than CDSPI Petite. The etf trades about -0.07 of its potential returns per unit of risk. The CDSPI petite cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,795  in CDSPI petite cap on October 26, 2024 and sell it today you would earn a total of  642.00  from holding CDSPI petite cap or generate 9.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

BMO Aggregate Bond  vs.  CDSPI petite cap

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

CDSPI petite cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CDSPI petite cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unfluctuating basic indicators, CDSPI Petite may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BMO Aggregate and CDSPI Petite

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

The idea behind BMO Aggregate Bond and CDSPI petite cap 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.