Correlation Between BMO Europe and CI Preferred

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

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

Diversification Opportunities for BMO Europe and CI Preferred

0.65

Correlation Coefficient

BMO Europe  CI Preferred

Poor diversification

The 3 months correlation between BMO and FPR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BMO Europe High and CI Preferred Share in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI Preferred Share and BMO Europe 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 Europe High are associated (or correlated) with CI Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI Preferred Share has no effect on the direction of BMO Europe i.e., BMO Europe and CI Preferred go up and down completely randomly.

Pair Corralation between BMO Europe and CI Preferred

Assuming the 90 days trading horizon BMO Europe is expected to generate 1.7 times less return on investment than CI Preferred. In addition to that, BMO Europe is 1.31 times more volatile than CI Preferred Share. It trades about 0.06 of its total potential returns per unit of risk. CI Preferred Share is currently generating about 0.13 per unit of volatility. If you would invest  1,833  in CI Preferred Share on August 29, 2024 and sell it today you would earn a total of  417.00  from holding CI Preferred Share or generate 22.75% return on investment over 90 days.

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

BMO Europe High  vs.  CI Preferred Share

BMO Europe High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Europe High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, BMO Europe is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CI Preferred Share

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CI Preferred Share are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CI Preferred is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Europe and CI Preferred

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

The idea behind BMO Europe High and CI Preferred Share 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.