Correlation Between BMO Mid and BMO Long
Can any of the company-specific risk be diversified away by investing in both BMO Mid and BMO Long 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 Mid and BMO Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Mid Corporate and BMO Long Corporate, you can compare the effects of market volatilities on BMO Mid and BMO Long 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 Mid with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and BMO Long.
Diversification Opportunities for BMO Mid and BMO Long
Poor diversification
The 3 months correlation between BMO and BMO is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Corporate and BMO Long Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Corporate and BMO Mid 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 Mid Corporate are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Corporate has no effect on the direction of BMO Mid i.e., BMO Mid and BMO Long go up and down completely randomly.
Pair Corralation between BMO Mid and BMO Long
Assuming the 90 days trading horizon BMO Mid Corporate is expected to generate 0.55 times more return on investment than BMO Long. However, BMO Mid Corporate is 1.81 times less risky than BMO Long. It trades about 0.06 of its potential returns per unit of risk. BMO Long Corporate is currently generating about 0.03 per unit of risk. If you would invest 1,369 in BMO Mid Corporate on August 30, 2024 and sell it today you would earn a total of 175.00 from holding BMO Mid Corporate or generate 12.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Mid Corporate vs. BMO Long Corporate
Performance |
| Timeline |
| BMO Mid Corporate |
| BMO Long Corporate |
BMO Mid and BMO Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Mid and BMO Long
The main advantage of trading using opposite BMO Mid and BMO Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid position performs unexpectedly, BMO Long 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 Long will offset losses from the drop in BMO Long's long position.| BMO Mid vs. BMO Long Corporate | BMO Mid vs. BMO Short Corporate | BMO Mid vs. BMO High Yield | BMO Mid vs. BMO Short Provincial |
| BMO Long vs. BMO Mid Corporate | BMO Long vs. BMO Short Corporate | BMO Long vs. BMO High Yield | BMO Long vs. BMO Long Provincial |
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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