Correlation Between BMO Ultra and TD Select
Can any of the company-specific risk be diversified away by investing in both BMO Ultra and TD Select 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 Ultra and TD Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Ultra Short Term and TD Select Short, you can compare the effects of market volatilities on BMO Ultra and TD Select 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 Ultra with a short position of TD Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Ultra and TD Select.
Diversification Opportunities for BMO Ultra and TD Select
Very poor diversification
The 3 months correlation between BMO and TCSB is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BMO Ultra Short Term and TD Select Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Select Short and BMO Ultra 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 Ultra Short Term are associated (or correlated) with TD Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Select Short has no effect on the direction of BMO Ultra i.e., BMO Ultra and TD Select go up and down completely randomly.
Pair Corralation between BMO Ultra and TD Select
Assuming the 90 days trading horizon BMO Ultra is expected to generate 1.49 times less return on investment than TD Select. But when comparing it to its historical volatility, BMO Ultra Short Term is 5.68 times less risky than TD Select. It trades about 0.65 of its potential returns per unit of risk. TD Select Short is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,437 in TD Select Short on November 2, 2024 and sell it today you would earn a total of 41.00 from holding TD Select Short or generate 2.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.05% |
| Values | Daily Returns |
BMO Ultra Short Term vs. TD Select Short
Performance |
| Timeline |
| BMO Ultra Short |
| TD Select Short |
BMO Ultra and TD Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Ultra and TD Select
The main advantage of trading using opposite BMO Ultra and TD Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Ultra position performs unexpectedly, TD Select 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 Select will offset losses from the drop in TD Select's long position.| BMO Ultra vs. BMO Long Federal | BMO Ultra vs. BMO Mid Federal | BMO Ultra vs. BMO Mid Corporate | BMO Ultra vs. BMO High Yield |
| TD Select vs. TD Active Preferred | TD Select vs. TD Canadian Aggregate | TD Select vs. TD Select Short | TD Select vs. TD Active Global |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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