Correlation Between BMO Aggregate and TD Active

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

Diversification Opportunities for BMO Aggregate and TD Active

-0.24

Correlation Coefficient

BMO Aggregate  TD Active

Very good diversification

The 3 months correlation between BMO and TUED is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and TD Active Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Active Enhanced 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 TD Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Active Enhanced has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and TD Active go up and down completely randomly.

Pair Corralation between BMO Aggregate and TD Active

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the TD Active. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 5.92 times less risky than TD Active. The etf trades about -0.19 of its potential returns per unit of risk. The TD Active Enhanced is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,200  in TD Active Enhanced on October 11, 2024 and sell it today you would lose (65.00) from holding TD Active Enhanced or give up 2.03% of portfolio value over 90 days.

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

BMO Aggregate Bond  vs.  TD Active Enhanced

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.

TD Active Enhanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TD Active Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, TD Active 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 TD Active

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

The idea behind BMO Aggregate Bond and TD Active Enhanced 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.