Correlation Between Dow Jones and BMO Ultra
Can any of the company-specific risk be diversified away by investing in both Dow Jones and BMO Ultra 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 Ultra 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 Ultra Short Term, you can compare the effects of market volatilities on Dow Jones and BMO Ultra 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 Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and BMO Ultra.
Diversification Opportunities for Dow Jones and BMO Ultra
Very poor diversification
The 3 months correlation between Dow and BMO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and BMO Ultra Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Ultra Short 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 Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Ultra Short has no effect on the direction of Dow Jones i.e., Dow Jones and BMO Ultra go up and down completely randomly.
Pair Corralation between Dow Jones and BMO Ultra
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 20.18 times more return on investment than BMO Ultra. However, Dow Jones is 20.18 times more volatile than BMO Ultra Short Term. It trades about 0.08 of its potential returns per unit of risk. BMO Ultra Short Term is currently generating about 0.57 per unit of risk. If you would invest 3,347,646 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 1,124,560 from holding Dow Jones Industrial or generate 33.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. BMO Ultra Short Term
Performance |
| Timeline |
Dow Jones and BMO Ultra Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
BMO Ultra Short Term
Pair trading matchups for BMO Ultra
Pair Trading with Dow Jones and BMO Ultra
The main advantage of trading using opposite Dow Jones and BMO Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, BMO Ultra 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 Ultra will offset losses from the drop in BMO Ultra's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| BMO Ultra vs. iShares Canadian Short | BMO Ultra vs. iShares Core Canadian | BMO Ultra vs. BMO Short Corporate | BMO Ultra vs. Vanguard 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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