Correlation Between BMO Long and Rubicon Organics

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

By analyzing existing cross correlation between BMO Long Corporate and Rubicon Organics, you can compare the effects of market volatilities on BMO Long and Rubicon Organics 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 Long with a short position of Rubicon Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and Rubicon Organics.

Diversification Opportunities for BMO Long and Rubicon Organics

0.38

Correlation Coefficient

BMO Long  Rubicon Organics

Weak diversification

The 3 months correlation between BMO and Rubicon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate and Rubicon Organics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rubicon Organics and BMO Long 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 Long Corporate are associated (or correlated) with Rubicon Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rubicon Organics has no effect on the direction of BMO Long i.e., BMO Long and Rubicon Organics go up and down completely randomly.

Pair Corralation between BMO Long and Rubicon Organics

Assuming the 90 days trading horizon BMO Long is expected to generate 3.8 times less return on investment than Rubicon Organics. But when comparing it to its historical volatility, BMO Long Corporate is 9.73 times less risky than Rubicon Organics. It trades about 0.1 of its potential returns per unit of risk. Rubicon Organics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Rubicon Organics on March 31, 2024 and sell it today you would earn a total of  4.00  from holding Rubicon Organics or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BMO Long Corporate  vs.  Rubicon Organics

BMO Long Corporate

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Corporate are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Long is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Rubicon Organics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rubicon Organics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Rubicon Organics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Long and Rubicon Organics

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

The idea behind BMO Long Corporate and Rubicon Organics 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.