Correlation Between GM and BMO Government
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and BMO Government 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 Government Bond, you can compare the effects of market volatilities on GM 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 GM with a short position of BMO Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BMO Government.
Diversification Opportunities for GM and BMO Government
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and BMO is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 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 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 GM i.e., GM and BMO Government go up and down completely randomly.
Pair Corralation between GM and BMO Government
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.44 times more return on investment than BMO Government. However, GM is 5.44 times more volatile than BMO Government Bond. It trades about 0.06 of its potential returns per unit of risk. BMO Government Bond is currently generating about 0.08 per unit of risk. If you would invest 3,816 in General Motors on November 5, 2024 and sell it today you would earn a total of 1,130 from holding General Motors or generate 29.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. BMO Government Bond
Performance |
| Timeline |
| General Motors |
| BMO Government Bond |
GM and BMO Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and BMO Government
The main advantage of trading using opposite GM and BMO Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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