Correlation Between BMO Canadian and BMO Dividend
Can any of the company-specific risk be diversified away by investing in both BMO Canadian and BMO Dividend 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 Dividend 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 Dividend CAD, you can compare the effects of market volatilities on BMO Canadian and BMO Dividend 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 Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and BMO Dividend.
Diversification Opportunities for BMO Canadian and BMO Dividend
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian Bank and BMO Dividend CAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Dividend CAD 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 Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Dividend CAD has no effect on the direction of BMO Canadian i.e., BMO Canadian and BMO Dividend go up and down completely randomly.
Pair Corralation between BMO Canadian and BMO Dividend
Assuming the 90 days trading horizon BMO Canadian is expected to generate 1.4 times less return on investment than BMO Dividend. But when comparing it to its historical volatility, BMO Canadian Bank is 2.91 times less risky than BMO Dividend. It trades about 0.15 of its potential returns per unit of risk. BMO Dividend CAD is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,538 in BMO Dividend CAD on August 29, 2024 and sell it today you would earn a total of 651.00 from holding BMO Dividend CAD or generate 25.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Canadian Bank vs. BMO Dividend CAD
Performance |
| Timeline |
| BMO Canadian Bank |
| BMO Dividend CAD |
BMO Canadian and BMO Dividend Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Canadian and BMO Dividend
The main advantage of trading using opposite BMO Canadian and BMO Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Canadian position performs unexpectedly, BMO Dividend 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 Dividend will offset losses from the drop in BMO Dividend's long position.| BMO Canadian vs. BMO Aggregate Bond | BMO Canadian vs. iShares Canadian Universe | BMO Canadian vs. BMO Core Plus | BMO Canadian vs. BMO Discount Bond |
| BMO Dividend vs. BMO Short Term Bond | BMO Dividend vs. BMO Canadian Bank | BMO Dividend vs. BMO Aggregate Bond | BMO Dividend vs. BMO Balanced ETF |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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