Correlation Between BMO Dow and BMO SP
Can any of the company-specific risk be diversified away by investing in both BMO Dow and BMO SP 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 Dow and BMO SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Dow Jones and BMO SP 500, you can compare the effects of market volatilities on BMO Dow and BMO SP 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 Dow with a short position of BMO SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Dow and BMO SP.
Diversification Opportunities for BMO Dow and BMO SP
Almost no diversification
The 3 months correlation between BMO and BMO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Dow Jones and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 and BMO Dow 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 Dow Jones are associated (or correlated) with BMO SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of BMO Dow i.e., BMO Dow and BMO SP go up and down completely randomly.
Pair Corralation between BMO Dow and BMO SP
Assuming the 90 days trading horizon BMO Dow Jones is expected to generate 1.18 times more return on investment than BMO SP. However, BMO Dow is 1.18 times more volatile than BMO SP 500. It trades about 0.21 of its potential returns per unit of risk. BMO SP 500 is currently generating about 0.15 per unit of risk. If you would invest 6,557 in BMO Dow Jones on August 25, 2024 and sell it today you would earn a total of 296.00 from holding BMO Dow Jones or generate 4.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Dow Jones vs. BMO SP 500
Performance |
| Timeline |
| BMO Dow Jones |
| BMO SP 500 |
BMO Dow and BMO SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Dow and BMO SP
The main advantage of trading using opposite BMO Dow and BMO SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Dow position performs unexpectedly, BMO SP 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 SP will offset losses from the drop in BMO SP's long position.The idea behind BMO Dow Jones and BMO SP 500 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.| BMO SP vs. BMO MSCI EAFE | BMO SP vs. BMO Dow Jones | BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO MSCI Emerging |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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