Correlation Between BMO Canadian and CI Canada

Can any of the company-specific risk be diversified away by investing in both BMO Canadian and CI Canada 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 Canadian and CI Canada into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Canadian High and CI Canada Quality, you can compare the effects of market volatilities on BMO Canadian and CI Canada 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 Canadian with a short position of CI Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and CI Canada.

Diversification Opportunities for BMO Canadian and CI Canada

0.8

Correlation Coefficient

BMO Canadian  CI Canada

Very poor diversification

The 3 months correlation between BMO and DGRC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian High and CI Canada Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI Canada Quality and BMO Canadian 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 Canadian High are associated (or correlated) with CI Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI Canada Quality has no effect on the direction of BMO Canadian i.e., BMO Canadian and CI Canada go up and down completely randomly.

Pair Corralation between BMO Canadian and CI Canada

Assuming the 90 days trading horizon BMO Canadian is expected to generate 1.98 times less return on investment than CI Canada. But when comparing it to its historical volatility, BMO Canadian High is 1.27 times less risky than CI Canada. It trades about 0.09 of its potential returns per unit of risk. CI Canada Quality is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,850  in CI Canada Quality on December 27, 2024 and sell it today you would earn a total of  226.00  from holding CI Canada Quality or generate 5.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

BMO Canadian High  vs.  CI Canada Quality

BMO Canadian High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CI Canada Quality

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CI Canada Quality are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CI Canada 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 Canadian and CI Canada

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

The idea behind BMO Canadian High and CI Canada Quality 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.