Correlation Between Dynamic Active and BMO Short
Can any of the company-specific risk be diversified away by investing in both Dynamic Active and BMO Short 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 Dynamic Active and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dynamic Active Preferred and BMO Short Provincial, you can compare the effects of market volatilities on Dynamic Active and BMO Short 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 Dynamic Active with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynamic Active and BMO Short.
Diversification Opportunities for Dynamic Active and BMO Short
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dynamic and BMO is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dynamic Active Preferred and BMO Short Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Provincial and Dynamic Active 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 Dynamic Active Preferred are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Provincial has no effect on the direction of Dynamic Active i.e., Dynamic Active and BMO Short go up and down completely randomly.
Pair Corralation between Dynamic Active and BMO Short
Assuming the 90 days trading horizon Dynamic Active Preferred is expected to generate 3.19 times more return on investment than BMO Short. However, Dynamic Active is 3.19 times more volatile than BMO Short Provincial. It trades about 0.09 of its potential returns per unit of risk. BMO Short Provincial is currently generating about 0.09 per unit of risk. If you would invest 1,766 in Dynamic Active Preferred on September 26, 2024 and sell it today you would earn a total of 541.00 from holding Dynamic Active Preferred or generate 30.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dynamic Active Preferred vs. BMO Short Provincial
Performance |
| Timeline |
| Dynamic Active Preferred |
| BMO Short Provincial |
Dynamic Active and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dynamic Active and BMO Short
The main advantage of trading using opposite Dynamic Active and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dynamic Active position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| Dynamic Active vs. BMO Laddered Preferred | Dynamic Active vs. Global X Active | Dynamic Active vs. RBC Canadian Preferred | Dynamic Active vs. Evolve Active Canadian |
| BMO Short vs. Dynamic Active Crossover | BMO Short vs. Dynamic Active Tactical | BMO Short vs. Dynamic Active Preferred | BMO Short vs. Dynamic Active Canadian |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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