Correlation Between GM and BMO Low
Can any of the company-specific risk be diversified away by investing in both GM and BMO Low 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 Low 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 Low Volatility, you can compare the effects of market volatilities on GM and BMO Low 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 Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BMO Low.
Diversification Opportunities for GM and BMO Low
Pay attention - limited upside
The 3 months correlation between GM and BMO is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BMO Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Low Volatility 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 Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Low Volatility has no effect on the direction of GM i.e., GM and BMO Low go up and down completely randomly.
Pair Corralation between GM and BMO Low
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.67 times more return on investment than BMO Low. However, GM is 3.67 times more volatile than BMO Low Volatility. It trades about 0.13 of its potential returns per unit of risk. BMO Low Volatility is currently generating about 0.09 per unit of risk. If you would invest 4,319 in General Motors on August 28, 2024 and sell it today you would earn a total of 1,701 from holding General Motors or generate 39.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
General Motors vs. BMO Low Volatility
Performance |
| Timeline |
| General Motors |
| BMO Low Volatility |
GM and BMO Low Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and BMO Low
The main advantage of trading using opposite GM and BMO Low positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, BMO Low 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 Low will offset losses from the drop in BMO Low's long position.The idea behind General Motors and BMO Low Volatility 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 Low vs. BMO Low Volatility | BMO Low vs. BMO Low Volatility | BMO Low vs. BMO International Dividend | BMO Low vs. BMO International Dividend |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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