Correlation Between BMO Corporate and BMO Short
Can any of the company-specific risk be diversified away by investing in both BMO Corporate and BMO Short 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 Corporate and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Corporate Bond and BMO Short Term Bond, you can compare the effects of market volatilities on BMO Corporate and BMO Short 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 Corporate with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Corporate and BMO Short.
Diversification Opportunities for BMO Corporate and BMO Short
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BMO Corporate Bond and BMO Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term and BMO Corporate 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 Corporate Bond are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Term has no effect on the direction of BMO Corporate i.e., BMO Corporate and BMO Short go up and down completely randomly.
Pair Corralation between BMO Corporate and BMO Short
Assuming the 90 days trading horizon BMO Corporate Bond is expected to generate 1.96 times more return on investment than BMO Short. However, BMO Corporate is 1.96 times more volatile than BMO Short Term Bond. It trades about 0.25 of its potential returns per unit of risk. BMO Short Term Bond is currently generating about 0.02 per unit of risk. If you would invest 4,693 in BMO Corporate Bond on September 1, 2024 and sell it today you would earn a total of 86.00 from holding BMO Corporate Bond or generate 1.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Corporate Bond vs. BMO Short Term Bond
Performance |
| Timeline |
| BMO Corporate Bond |
| BMO Short Term |
BMO Corporate and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Corporate and BMO Short
The main advantage of trading using opposite BMO Corporate and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Corporate position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| BMO Corporate vs. Brompton Global Dividend | BMO Corporate vs. Global Healthcare Income | BMO Corporate vs. Tech Leaders Income | BMO Corporate vs. Brompton North American |
| BMO Short vs. BMO Corporate Bond | BMO Short vs. BMO Government Bond | BMO Short vs. BMO Ultra Short Term | BMO Short vs. BMO Short 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Global Correlations Find global opportunities by holding instruments from different markets | |
| Transaction History View history of all your transactions and understand their impact on performance | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal |