Correlation Between BMO Aggregate and Sun Life

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

Diversification Opportunities for BMO Aggregate and Sun Life

0.76

Correlation Coefficient

BMO Aggregate  Sun Life

Poor diversification

The 3 months correlation between BMO and Sun is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Sun Life Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Life Financial 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 Sun Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Life Financial has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Sun Life go up and down completely randomly.

Pair Corralation between BMO Aggregate and Sun Life

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.36 times more return on investment than Sun Life. However, BMO Aggregate Bond is 2.75 times less risky than Sun Life. It trades about 0.15 of its potential returns per unit of risk. Sun Life Financial is currently generating about -0.07 per unit of risk. If you would invest  3,015  in BMO Aggregate Bond on September 5, 2024 and sell it today you would earn a total of  25.00  from holding BMO Aggregate Bond or generate 0.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

BMO Aggregate Bond  vs.  Sun Life Financial

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.

Sun Life Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Life Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Sun Life is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BMO Aggregate and Sun Life

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

The idea behind BMO Aggregate Bond and Sun Life Financial 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.