Correlation Between BMO Core and BMO Sustainable
Can any of the company-specific risk be diversified away by investing in both BMO Core and BMO Sustainable 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 Sustainable 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 Sustainable Global, you can compare the effects of market volatilities on BMO Core and BMO Sustainable 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 Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Core and BMO Sustainable.
Diversification Opportunities for BMO Core and BMO Sustainable
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BMO and BMO is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BMO Core Plus and BMO Sustainable Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Sustainable Global 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 Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Sustainable Global has no effect on the direction of BMO Core i.e., BMO Core and BMO Sustainable go up and down completely randomly.
Pair Corralation between BMO Core and BMO Sustainable
Assuming the 90 days trading horizon BMO Core is expected to generate 1.07 times less return on investment than BMO Sustainable. In addition to that, BMO Core is 1.43 times more volatile than BMO Sustainable Global. It trades about 0.08 of its total potential returns per unit of risk. BMO Sustainable Global is currently generating about 0.12 per unit of volatility. If you would invest 2,899 in BMO Sustainable Global on August 29, 2024 and sell it today you would earn a total of 26.00 from holding BMO Sustainable Global or generate 0.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Core Plus vs. BMO Sustainable Global
Performance |
| Timeline |
| BMO Core Plus |
| BMO Sustainable Global |
BMO Core and BMO Sustainable Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Core and BMO Sustainable
The main advantage of trading using opposite BMO Core and BMO Sustainable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Core position performs unexpectedly, BMO Sustainable 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 Sustainable will offset losses from the drop in BMO Sustainable's long position.| BMO Core vs. BMO Mid Term IG | BMO Core vs. BMO Sustainable Global | BMO Core vs. BMO Government Bond | BMO Core vs. BMO Mid Corporate |
| BMO Sustainable vs. BMO Global Strategic | BMO Sustainable vs. BMO Core Plus | BMO Sustainable vs. BMO Corporate Bond | BMO Sustainable vs. BMO Government Bond |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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