Correlation Between BMO Discount and BMO Canadian
Can any of the company-specific risk be diversified away by investing in both BMO Discount and BMO Canadian 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 Discount and BMO Canadian into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Discount Bond and BMO Canadian Bank, you can compare the effects of market volatilities on BMO Discount and BMO Canadian 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 Discount with a short position of BMO Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Discount and BMO Canadian.
Diversification Opportunities for BMO Discount and BMO Canadian
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding BMO Discount Bond and BMO Canadian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian Bank and BMO Discount 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 Discount Bond are associated (or correlated) with BMO Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian Bank has no effect on the direction of BMO Discount i.e., BMO Discount and BMO Canadian go up and down completely randomly.
Pair Corralation between BMO Discount and BMO Canadian
Assuming the 90 days trading horizon BMO Discount Bond is expected to generate 3.43 times more return on investment than BMO Canadian. However, BMO Discount is 3.43 times more volatile than BMO Canadian Bank. It trades about 0.15 of its potential returns per unit of risk. BMO Canadian Bank is currently generating about 0.19 per unit of risk. If you would invest 1,509 in BMO Discount Bond on November 3, 2024 and sell it today you would earn a total of 17.00 from holding BMO Discount Bond or generate 1.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Discount Bond vs. BMO Canadian Bank
Performance |
| Timeline |
| BMO Discount Bond |
| BMO Canadian Bank |
BMO Discount and BMO Canadian Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Discount and BMO Canadian
The main advantage of trading using opposite BMO Discount and BMO Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Discount position performs unexpectedly, BMO Canadian 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 Canadian will offset losses from the drop in BMO Canadian's long position.| 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 |
| BMO Canadian vs. BMO Aggregate Bond | BMO Canadian vs. iShares Canadian Universe | BMO Canadian vs. BMO Core Plus | BMO Canadian vs. BMO Discount 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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