Correlation Between BMO Short and Dynamic Active
Can any of the company-specific risk be diversified away by investing in both BMO Short and Dynamic Active 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 Short and Dynamic Active into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Short Corporate and Dynamic Active Tactical, you can compare the effects of market volatilities on BMO Short and Dynamic Active 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 Short with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and Dynamic Active.
Diversification Opportunities for BMO Short and Dynamic Active
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between BMO and Dynamic is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and Dynamic Active Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Tactical and BMO Short 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 Short Corporate are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Tactical has no effect on the direction of BMO Short i.e., BMO Short and Dynamic Active go up and down completely randomly.
Pair Corralation between BMO Short and Dynamic Active
Assuming the 90 days trading horizon BMO Short is expected to generate 2.62 times less return on investment than Dynamic Active. But when comparing it to its historical volatility, BMO Short Corporate is 2.27 times less risky than Dynamic Active. It trades about 0.19 of its potential returns per unit of risk. Dynamic Active Tactical is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 1,783 in Dynamic Active Tactical on September 4, 2024 and sell it today you would earn a total of 32.00 from holding Dynamic Active Tactical or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
BMO Short Corporate vs. Dynamic Active Tactical
Performance |
| Timeline |
| BMO Short Corporate |
| Dynamic Active Tactical |
BMO Short and Dynamic Active Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and Dynamic Active
The main advantage of trading using opposite BMO Short and Dynamic Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, Dynamic Active 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 Dynamic Active will offset losses from the drop in Dynamic Active's long position.The idea behind BMO Short Corporate and Dynamic Active Tactical pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Dynamic Active vs. BMO Short Corporate | Dynamic Active vs. BMO High Yield | Dynamic Active vs. iShares Core Canadian | Dynamic Active vs. Harvest Global REIT |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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