Correlation Between BMO Aggregate and PHN Canadian

Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and PHN 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 Aggregate and PHN Canadian 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 PHN Canadian Equity, you can compare the effects of market volatilities on BMO Aggregate and PHN 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 Aggregate with a short position of PHN Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and PHN Canadian.

Diversification Opportunities for BMO Aggregate and PHN Canadian

0.85

Correlation Coefficient

BMO Aggregate  PHN Canadian

Very poor diversification

The 3 months correlation between BMO and PHN is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and PHN Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHN Canadian Equity 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 PHN Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHN Canadian Equity has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and PHN Canadian go up and down completely randomly.

Pair Corralation between BMO Aggregate and PHN Canadian

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 1.15 times less return on investment than PHN Canadian. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.35 times less risky than PHN Canadian. It trades about 0.01 of its potential returns per unit of risk. PHN Canadian Equity is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,232  in PHN Canadian Equity on November 20, 2024 and sell it today you would earn a total of  1.00  from holding PHN Canadian Equity or generate 0.04% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  PHN Canadian Equity

BMO Aggregate Bond

Risk-Adjusted Performance

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.

PHN Canadian Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days PHN Canadian Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy basic indicators, PHN 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 Aggregate and PHN Canadian

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

The idea behind BMO Aggregate Bond and PHN Canadian Equity 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..