Correlation Between Brompton European and BMO Global
Can any of the company-specific risk be diversified away by investing in both Brompton European and BMO Global 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 Brompton European and BMO Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brompton European Dividend and BMO Global High, you can compare the effects of market volatilities on Brompton European and BMO Global 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 Brompton European with a short position of BMO Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and BMO Global.
Diversification Opportunities for Brompton European and BMO Global
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Brompton and BMO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and BMO Global High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global High and Brompton European 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 Brompton European Dividend are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global High has no effect on the direction of Brompton European i.e., Brompton European and BMO Global go up and down completely randomly.
Pair Corralation between Brompton European and BMO Global
Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 1.75 times more return on investment than BMO Global. However, Brompton European is 1.75 times more volatile than BMO Global High. It trades about 0.22 of its potential returns per unit of risk. BMO Global High is currently generating about 0.04 per unit of risk. If you would invest 1,075 in Brompton European Dividend on November 28, 2024 and sell it today you would earn a total of 40.00 from holding Brompton European Dividend or generate 3.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brompton European Dividend vs. BMO Global High
Performance |
| Timeline |
| Brompton European |
| BMO Global High |
Brompton European and BMO Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brompton European and BMO Global
The main advantage of trading using opposite Brompton European and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brompton European position performs unexpectedly, BMO Global 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 Global will offset losses from the drop in BMO Global's long position.| Brompton European vs. Brompton Global Dividend | Brompton European vs. Global Healthcare Income | Brompton European vs. Tech Leaders Income | Brompton European vs. Brompton North American |
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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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