Correlation Between Dow Jones and BMO Core
Can any of the company-specific risk be diversified away by investing in both Dow Jones and BMO Core 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 Dow Jones and BMO Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and BMO Core Plus, you can compare the effects of market volatilities on Dow Jones and BMO Core 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 Dow Jones with a short position of BMO Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and BMO Core.
Diversification Opportunities for Dow Jones and BMO Core
Good diversification
The 3 months correlation between Dow and BMO is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and BMO Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Core Plus and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with BMO Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Core Plus has no effect on the direction of Dow Jones i.e., Dow Jones and BMO Core go up and down completely randomly.
Pair Corralation between Dow Jones and BMO Core
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.6 times more return on investment than BMO Core. However, Dow Jones is 1.6 times more volatile than BMO Core Plus. It trades about 0.11 of its potential returns per unit of risk. BMO Core Plus is currently generating about 0.05 per unit of risk. If you would invest 3,361,869 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,124,162 from holding Dow Jones Industrial or generate 33.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.75% |
| Values | Daily Returns |
Dow Jones Industrial vs. BMO Core Plus
Performance |
| Timeline |
Dow Jones and BMO Core Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
BMO Core Plus
Pair trading matchups for BMO Core
Pair Trading with Dow Jones and BMO Core
The main advantage of trading using opposite Dow Jones and BMO Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, BMO Core 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 Core will offset losses from the drop in BMO Core's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| BMO Core vs. Mackenzie Core Plus | BMO Core vs. Mackenzie Unconstrained Bond | BMO Core vs. Mackenzie Floating Rate | BMO Core vs. Mackenzie Canadian Short |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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