Correlation Between Ford and BMO Government
Can any of the company-specific risk be diversified away by investing in both Ford and BMO Government 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 Government 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 Government Bond, you can compare the effects of market volatilities on Ford and BMO Government 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 Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BMO Government.
Diversification Opportunities for Ford and BMO Government
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and BMO is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BMO Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Government Bond 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 Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Government Bond has no effect on the direction of Ford i.e., Ford and BMO Government go up and down completely randomly.
Pair Corralation between Ford and BMO Government
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BMO Government. In addition to that, Ford is 5.83 times more volatile than BMO Government Bond. It trades about -0.02 of its total potential returns per unit of risk. BMO Government Bond is currently generating about 0.08 per unit of volatility. If you would invest 4,329 in BMO Government Bond on November 5, 2024 and sell it today you would earn a total of 321.00 from holding BMO Government Bond or generate 7.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Ford Motor vs. BMO Government Bond
Performance |
| Timeline |
| Ford Motor |
| BMO Government Bond |
Ford and BMO Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BMO Government
The main advantage of trading using opposite Ford and BMO Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BMO Government 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 Government will offset losses from the drop in BMO Government's long position.The idea behind Ford Motor and BMO Government Bond 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 Government vs. BMO Corporate Bond | BMO Government vs. BMO Short Federal | BMO Government vs. BMO Short Provincial | BMO Government vs. BMO Mid Term IG |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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