Correlation Between BMO Aggregate and Stroud Resources

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

Diversification Opportunities for BMO Aggregate and Stroud Resources

0.09

Correlation Coefficient

BMO Aggregate  Stroud Resources

Significant diversification

The 3 months correlation between BMO and Stroud is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Stroud Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stroud Resources 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 Stroud Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stroud Resources has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Stroud Resources go up and down completely randomly.

Pair Corralation between BMO Aggregate and Stroud Resources

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 26.34 times less return on investment than Stroud Resources. But when comparing it to its historical volatility, BMO Aggregate Bond is 42.12 times less risky than Stroud Resources. It trades about 0.1 of its potential returns per unit of risk. Stroud Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Stroud Resources on December 21, 2024 and sell it today you would earn a total of  0.00  from holding Stroud Resources or generate 0.0% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  Stroud Resources

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 8 (%) 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.

Stroud Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Stroud Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Stroud Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and Stroud Resources

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

The idea behind BMO Aggregate Bond and Stroud Resources 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.