Correlation Between BMO Long and RBC Target

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

By analyzing existing cross correlation between BMO Long Provincial and RBC Target 2027, you can compare the effects of market volatilities on BMO Long and RBC Target 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 RBC Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and RBC Target.

Diversification Opportunities for BMO Long and RBC Target

-0.18

Correlation Coefficient

BMO Long  RBC Target

Good diversification

The 3 months correlation between BMO and RBC is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Provincial and RBC Target 2027 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Target 2027 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 Provincial are associated (or correlated) with RBC Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Target 2027 has no effect on the direction of BMO Long i.e., BMO Long and RBC Target go up and down completely randomly.

Pair Corralation between BMO Long and RBC Target

Assuming the 90 days trading horizon BMO Long Provincial is expected to under-perform the RBC Target. In addition to that, BMO Long is 6.81 times more volatile than RBC Target 2027. It trades about -0.07 of its total potential returns per unit of risk. RBC Target 2027 is currently generating about 0.16 per unit of volatility. If you would invest  1,823  in RBC Target 2027 on April 25, 2025 and sell it today you would earn a total of  16.00  from holding RBC Target 2027 or generate 0.88% return on investment over 90 days.

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

BMO Long Provincial  vs.  RBC Target 2027

BMO Long Provincial

Risk-Adjusted Performance

Very Weak

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

RBC Target 2027

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Target 2027 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RBC Target 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 Long and RBC Target

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

The idea behind BMO Long Provincial and RBC Target 2027 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.