Correlation Between BMO Core and BMO Discount
Can any of the company-specific risk be diversified away by investing in both BMO Core 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 Core 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 Core Plus and BMO Discount Bond, you can compare the effects of market volatilities on BMO Core 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 Core with a short position of BMO Discount. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Core and BMO Discount.
Diversification Opportunities for BMO Core and BMO Discount
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding BMO Core Plus 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 Core 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 Core Plus 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 Core i.e., BMO Core and BMO Discount go up and down completely randomly.
Pair Corralation between BMO Core and BMO Discount
Assuming the 90 days trading horizon BMO Core is expected to generate 1.02 times less return on investment than BMO Discount. In addition to that, BMO Core is 1.03 times more volatile than BMO Discount Bond. It trades about 0.06 of its total potential returns per unit of risk. BMO Discount Bond is currently generating about 0.06 per unit of volatility. If you would invest 1,386 in BMO Discount Bond on August 28, 2024 and sell it today you would earn a total of 116.00 from holding BMO Discount Bond or generate 8.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Core Plus vs. BMO Discount Bond
Performance |
| Timeline |
| BMO Core Plus |
| BMO Discount Bond |
BMO Core and BMO Discount Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Core and BMO Discount
The main advantage of trading using opposite BMO Core and BMO Discount positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Core 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 Core vs. Mackenzie Core Plus | BMO Core vs. Mackenzie Unconstrained Bond | BMO Core vs. Mackenzie Floating Rate | BMO Core vs. Mackenzie Canadian Short |
| BMO Discount vs. Vanguard Canadian Short | BMO Discount vs. BMO Aggregate Bond | BMO Discount vs. BMO Short Corporate | BMO Discount vs. CI 1 5 Year |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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