Correlation Between TD International and BMO SP
Can any of the company-specific risk be diversified away by investing in both TD International and BMO SP 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 TD International and BMO SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TD International Equity and BMO SP 500, you can compare the effects of market volatilities on TD International and BMO SP 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 TD International with a short position of BMO SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of TD International and BMO SP.
Diversification Opportunities for TD International and BMO SP
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between THE and BMO is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding TD International Equity and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 and TD International 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 TD International Equity are associated (or correlated) with BMO SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of TD International i.e., TD International and BMO SP go up and down completely randomly.
Pair Corralation between TD International and BMO SP
Assuming the 90 days trading horizon TD International Equity is expected to generate 0.59 times more return on investment than BMO SP. However, TD International Equity is 1.69 times less risky than BMO SP. It trades about 0.36 of its potential returns per unit of risk. BMO SP 500 is currently generating about 0.14 per unit of risk. If you would invest 2,522 in TD International Equity on November 1, 2024 and sell it today you would earn a total of 109.00 from holding TD International Equity or generate 4.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
TD International Equity vs. BMO SP 500
Performance |
| Timeline |
| TD International Equity |
| BMO SP 500 |
TD International and BMO SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TD International and BMO SP
The main advantage of trading using opposite TD International and BMO SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TD International position performs unexpectedly, BMO SP 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 BMO SP will offset losses from the drop in BMO SP's long position.| TD International vs. TD International Equity | TD International vs. TD Equity CAD | TD International vs. TD Canadian Equity | TD International vs. TD Canadian Aggregate |
| BMO SP vs. BMO MSCI EAFE | BMO SP vs. BMO Dow Jones | BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO MSCI Emerging |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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