Correlation Between Ford and BMO SIA
Can any of the company-specific risk be diversified away by investing in both Ford and BMO SIA 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 Ford and BMO SIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BMO SIA Focused, you can compare the effects of market volatilities on Ford and BMO SIA 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 Ford with a short position of BMO SIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BMO SIA.
Diversification Opportunities for Ford and BMO SIA
Very weak diversification
The 3 months correlation between Ford and BMO is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BMO SIA Focused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SIA Focused and Ford 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 Ford Motor are associated (or correlated) with BMO SIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SIA Focused has no effect on the direction of Ford i.e., Ford and BMO SIA go up and down completely randomly.
Pair Corralation between Ford and BMO SIA
Taking into account the 90-day investment horizon Ford is expected to generate 1.99 times less return on investment than BMO SIA. In addition to that, Ford is 2.82 times more volatile than BMO SIA Focused. It trades about 0.01 of its total potential returns per unit of risk. BMO SIA Focused is currently generating about 0.06 per unit of volatility. If you would invest 3,840 in BMO SIA Focused on September 5, 2024 and sell it today you would earn a total of 912.00 from holding BMO SIA Focused or generate 23.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. BMO SIA Focused
Performance |
| Timeline |
| Ford Motor |
| BMO SIA Focused |
Ford and BMO SIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BMO SIA
The main advantage of trading using opposite Ford and BMO SIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BMO SIA 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 SIA will offset losses from the drop in BMO SIA's long position.The idea behind Ford Motor and BMO SIA Focused 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.| BMO SIA vs. BMO SIA Focused | BMO SIA vs. BMO MSCI USA | BMO SIA vs. BMO MSCI Canada | BMO SIA vs. BMO Low Volatility |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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