Correlation Between BMO Short and RBC 1

Can any of the company-specific risk be diversified away by investing in both BMO Short and RBC 1 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 Short and RBC 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Short Corporate and RBC 1 5 Year, you can compare the effects of market volatilities on BMO Short and RBC 1 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 Short with a short position of RBC 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and RBC 1.

Diversification Opportunities for BMO Short and RBC 1

0.93

Correlation Coefficient

BMO Short  RBC 1

Almost no diversification

The 3 months correlation between BMO and RBC is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and RBC 1 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC 1 5 and BMO Short 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 Short Corporate are associated (or correlated) with RBC 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC 1 5 has no effect on the direction of BMO Short i.e., BMO Short and RBC 1 go up and down completely randomly.

Pair Corralation between BMO Short and RBC 1

Assuming the 90 days trading horizon BMO Short is expected to generate 1.03 times less return on investment than RBC 1. But when comparing it to its historical volatility, BMO Short Corporate is 1.2 times less risky than RBC 1. It trades about 0.18 of its potential returns per unit of risk. RBC 1 5 Year is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,861  in RBC 1 5 Year on May 4, 2025 and sell it today you would earn a total of  23.00  from holding RBC 1 5 Year or generate 1.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

BMO Short Corporate  vs.  RBC 1 5 Year

BMO Short Corporate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Corporate are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RBC 1 5

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC 1 5 Year are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC 1 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 Short and RBC 1

The main advantage of trading using opposite BMO Short and RBC 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, RBC 1 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 RBC 1 will offset losses from the drop in RBC 1's long position.

The idea behind BMO Short Corporate and RBC 1 5 Year 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.