Correlation Between BMO Discount and BMO Mid
Can any of the company-specific risk be diversified away by investing in both BMO Discount and BMO Mid 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 Mid 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 Mid Provincial, you can compare the effects of market volatilities on BMO Discount and BMO Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Discount and BMO Mid.
Diversification Opportunities for BMO Discount and BMO Mid
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding BMO Discount Bond and BMO Mid Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Provincial 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Mid Provincial has no effect on the direction of BMO Discount i.e., BMO Discount and BMO Mid go up and down completely randomly.
Pair Corralation between BMO Discount and BMO Mid
Assuming the 90 days trading horizon BMO Discount is expected to generate 1.01 times less return on investment than BMO Mid. But when comparing it to its historical volatility, BMO Discount Bond is 1.01 times less risky than BMO Mid. It trades about 0.03 of its potential returns per unit of risk. BMO Mid Provincial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,300 in BMO Mid Provincial on August 29, 2024 and sell it today you would earn a total of 87.00 from holding BMO Mid Provincial or generate 6.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Discount Bond vs. BMO Mid Provincial
Performance |
| Timeline |
| BMO Discount Bond |
| BMO Mid Provincial |
BMO Discount and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Discount and BMO Mid
The main advantage of trading using opposite BMO Discount and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Discount position performs unexpectedly, BMO Mid 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 Mid will offset losses from the drop in BMO Mid's long position.| BMO Discount vs. Vanguard Canadian Short | BMO Discount vs. BMO Aggregate Bond | BMO Discount vs. BMO Short Corporate | BMO Discount vs. BMO Ultra Short Term |
| BMO Mid vs. BMO Long Federal | BMO Mid vs. BMO Long Provincial | BMO Mid vs. Wealthsimple Developed Markets | BMO Mid vs. Wealthsimple North America |
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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