Correlation Between BMO SP and Desjardins
Can any of the company-specific risk be diversified away by investing in both BMO SP and Desjardins 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 SP and Desjardins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO SP 500 and Desjardins RI Developed, you can compare the effects of market volatilities on BMO SP and Desjardins 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 SP with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Desjardins.
Diversification Opportunities for BMO SP and Desjardins
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between BMO and Desjardins is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Desjardins RI Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Developed and BMO SP 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 SP 500 are associated (or correlated) with Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Developed has no effect on the direction of BMO SP i.e., BMO SP and Desjardins go up and down completely randomly.
Pair Corralation between BMO SP and Desjardins
Assuming the 90 days trading horizon BMO SP 500 is expected to generate 1.03 times more return on investment than Desjardins. However, BMO SP is 1.03 times more volatile than Desjardins RI Developed. It trades about 0.12 of its potential returns per unit of risk. Desjardins RI Developed is currently generating about 0.08 per unit of risk. If you would invest 5,992 in BMO SP 500 on September 2, 2024 and sell it today you would earn a total of 2,355 from holding BMO SP 500 or generate 39.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
BMO SP 500 vs. Desjardins RI Developed
Performance |
| Timeline |
| BMO SP 500 |
| Desjardins RI Developed |
BMO SP and Desjardins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and Desjardins
The main advantage of trading using opposite BMO SP and Desjardins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, Desjardins 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 Desjardins will offset losses from the drop in Desjardins' long position.| BMO SP vs. BMO MSCI EAFE | BMO SP vs. BMO Dow Jones | BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO MSCI Emerging |
| Desjardins vs. Vanguard FTSE Emerging | Desjardins vs. Vanguard FTSE Developed | Desjardins vs. Vanguard Total Market | Desjardins vs. Vanguard Canadian Aggregate |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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