Correlation Between TD Canadian and BMO SPTSX

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

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

Diversification Opportunities for TD Canadian and BMO SPTSX

-0.71

Correlation Coefficient

TD Canadian  BMO SPTSX

Pay attention - limited upside

The 3 months correlation between TCLB and BMO is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding TD Canadian Long and BMO SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SPTSX Capped and TD Canadian 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 TD Canadian Long are associated (or correlated) with BMO SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SPTSX Capped has no effect on the direction of TD Canadian i.e., TD Canadian and BMO SPTSX go up and down completely randomly.

Pair Corralation between TD Canadian and BMO SPTSX

Assuming the 90 days trading horizon TD Canadian Long is expected to under-perform the BMO SPTSX. In addition to that, TD Canadian is 1.55 times more volatile than BMO SPTSX Capped. It trades about -0.08 of its total potential returns per unit of risk. BMO SPTSX Capped is currently generating about 0.5 per unit of volatility. If you would invest  3,192  in BMO SPTSX Capped on April 21, 2025 and sell it today you would earn a total of  464.00  from holding BMO SPTSX Capped or generate 14.54% return on investment over 90 days.

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

TD Canadian Long  vs.  BMO SPTSX Capped

TD Canadian Long

Risk-Adjusted Performance

Very Weak

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

BMO SPTSX Capped

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Capped are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TD Canadian and BMO SPTSX

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

The idea behind TD Canadian Long and BMO SPTSX Capped 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.