Correlation Between BMO Short and BMO High
Can any of the company-specific risk be diversified away by investing in both BMO Short and BMO High 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 BMO High 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 BMO High Yield, you can compare the effects of market volatilities on BMO Short and BMO High 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 BMO High. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO High.
Diversification Opportunities for BMO Short and BMO High
Poor diversification
The 3 months correlation between BMO and BMO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and BMO High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO High Yield 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 BMO High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO High Yield has no effect on the direction of BMO Short i.e., BMO Short and BMO High go up and down completely randomly.
Pair Corralation between BMO Short and BMO High
Assuming the 90 days trading horizon BMO Short Corporate is expected to under-perform the BMO High. But the etf apears to be less risky and, when comparing its historical volatility, BMO Short Corporate is 2.95 times less risky than BMO High. The etf trades about -0.08 of its potential returns per unit of risk. The BMO High Yield is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,876 in BMO High Yield on August 27, 2024 and sell it today you would earn a total of 26.00 from holding BMO High Yield or generate 1.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Corporate vs. BMO High Yield
Performance |
| Timeline |
| BMO Short Corporate |
| BMO High Yield |
BMO Short and BMO High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and BMO High
The main advantage of trading using opposite BMO Short and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, BMO High 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 High will offset losses from the drop in BMO High's long position.| BMO Short vs. Mackenzie Canadian Aggregate | BMO Short vs. Mackenzie Core Plus | BMO Short vs. Mackenzie Investment Grade | BMO Short vs. Mackenzie Core Plus |
| BMO High vs. BMO Mid Federal | BMO High vs. BMO Short Corporate | BMO High vs. BMO Emerging Markets | BMO High vs. BMO Long Corporate |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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