Correlation Between BMO Canadian and BMO Discount
Can any of the company-specific risk be diversified away by investing in both BMO Canadian and BMO Discount 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 BMO Canadian and BMO Discount into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Canadian Bank and BMO Discount Bond, you can compare the effects of market volatilities on BMO Canadian and BMO Discount 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 BMO Canadian with a short position of BMO Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and BMO Discount.
Diversification Opportunities for BMO Canadian and BMO Discount
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian Bank and BMO Discount Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Discount Bond and BMO Canadian 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 BMO Canadian Bank are associated (or correlated) with BMO Discount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Discount Bond has no effect on the direction of BMO Canadian i.e., BMO Canadian and BMO Discount go up and down completely randomly.
Pair Corralation between BMO Canadian and BMO Discount
Assuming the 90 days trading horizon BMO Canadian Bank is expected to generate 0.47 times more return on investment than BMO Discount. However, BMO Canadian Bank is 2.11 times less risky than BMO Discount. It trades about 0.22 of its potential returns per unit of risk. BMO Discount Bond is currently generating about 0.06 per unit of risk. If you would invest 2,583 in BMO Canadian Bank on August 31, 2024 and sell it today you would earn a total of 453.00 from holding BMO Canadian Bank or generate 17.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
BMO Canadian Bank vs. BMO Discount Bond
Performance |
| Timeline |
| BMO Canadian Bank |
| BMO Discount Bond |
BMO Canadian and BMO Discount Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Canadian and BMO Discount
The main advantage of trading using opposite BMO Canadian and BMO Discount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Canadian position performs unexpectedly, BMO Discount 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 Discount will offset losses from the drop in BMO Discount's long position.| BMO Canadian vs. BMO Short Term Bond | BMO Canadian vs. BMO Aggregate Bond | BMO Canadian vs. BMO Balanced ETF | BMO Canadian vs. BMO Aggregate Bond |
| BMO Discount vs. BetaPro Gold Bullion | BMO Discount vs. BetaPro SP TSX | BMO Discount vs. BetaPro SPTSX Capped | BMO Discount vs. Global X Active |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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