Correlation Between BMO MSCI and TD Equity

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

By analyzing existing cross correlation between BMO MSCI USA and TD Equity Index, you can compare the effects of market volatilities on BMO MSCI and TD Equity 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 MSCI with a short position of TD Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and TD Equity.

Diversification Opportunities for BMO MSCI and TD Equity

1.0

Correlation Coefficient

BMO MSCI  TD Equity

No risk reduction

The 3 months correlation between BMO and TPU is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI USA and TD Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Equity Index and BMO MSCI 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 MSCI USA are associated (or correlated) with TD Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Equity Index has no effect on the direction of BMO MSCI i.e., BMO MSCI and TD Equity go up and down completely randomly.

Pair Corralation between BMO MSCI and TD Equity

Assuming the 90 days trading horizon BMO MSCI USA is expected to generate 1.13 times more return on investment than TD Equity. However, BMO MSCI is 1.13 times more volatile than TD Equity Index. It trades about 0.25 of its potential returns per unit of risk. TD Equity Index is currently generating about 0.24 per unit of risk. If you would invest  5,230  in BMO MSCI USA on April 24, 2025 and sell it today you would earn a total of  818.00  from holding BMO MSCI USA or generate 15.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

BMO MSCI USA  vs.  TD Equity Index

BMO MSCI USA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI USA are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

TD Equity Index

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TD Equity Index are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TD Equity displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO MSCI and TD Equity

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

The idea behind BMO MSCI USA and TD Equity Index 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.