Correlation Between BMO Aggregate and CIBC Equity

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

Diversification Opportunities for BMO Aggregate and CIBC Equity

-0.45

Correlation Coefficient

BMO Aggregate  CIBC Equity

Very good diversification

The 3 months correlation between BMO and CIBC is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and CIBC Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIBC Equity Index 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 CIBC Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIBC Equity Index has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and CIBC Equity go up and down completely randomly.

Pair Corralation between BMO Aggregate and CIBC Equity

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.35 times more return on investment than CIBC Equity. However, BMO Aggregate Bond is 2.9 times less risky than CIBC Equity. It trades about 0.1 of its potential returns per unit of risk. CIBC Equity Index is currently generating about -0.07 per unit of risk. If you would invest  2,983  in BMO Aggregate Bond on December 20, 2024 and sell it today you would earn a total of  60.00  from holding BMO Aggregate Bond or generate 2.01% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  CIBC Equity Index

BMO Aggregate Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

CIBC Equity Index

Risk-Adjusted Performance

Very Weak

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

Pair Trading with BMO Aggregate and CIBC Equity

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

The idea behind BMO Aggregate Bond and CIBC Equity Index 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.