Correlation Between GM and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both GM and BMO MSCI 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 GM and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and BMO MSCI Canada, you can compare the effects of market volatilities on GM and BMO MSCI 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 GM with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BMO MSCI.
Diversification Opportunities for GM and BMO MSCI
Very poor diversification
The 3 months correlation between GM and BMO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BMO MSCI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI Canada and GM 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 General Motors are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI Canada has no effect on the direction of GM i.e., GM and BMO MSCI go up and down completely randomly.
Pair Corralation between GM and BMO MSCI
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.73 times more return on investment than BMO MSCI. However, GM is 1.73 times more volatile than BMO MSCI Canada. It trades about 0.06 of its potential returns per unit of risk. BMO MSCI Canada is currently generating about 0.07 per unit of risk. If you would invest 3,283 in General Motors on September 12, 2024 and sell it today you would earn a total of 1,991 from holding General Motors or generate 60.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.58% |
| Values | Daily Returns |
General Motors vs. BMO MSCI Canada
Performance |
| Timeline |
| General Motors |
| BMO MSCI Canada |
GM and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and BMO MSCI
The main advantage of trading using opposite GM and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, BMO MSCI 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 MSCI will offset losses from the drop in BMO MSCI's long position.The idea behind General Motors and BMO MSCI Canada 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 MSCI vs. BMO MSCI USA | BMO MSCI vs. BMO MSCI Global | BMO MSCI vs. BMO MSCI EAFE | BMO MSCI vs. BMO Balanced ESG |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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