Correlation Between BMO Canadian and BMO Equal

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Can any of the company-specific risk be diversified away by investing in both BMO Canadian and BMO Equal 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 Canadian and BMO Equal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Canadian Dividend and BMO Equal Weight, you can compare the effects of market volatilities on BMO Canadian and BMO Equal 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 Canadian with a short position of BMO Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and BMO Equal.

Diversification Opportunities for BMO Canadian and BMO Equal

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between BMO and BMO is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian Dividend and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight and BMO Canadian 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 Canadian Dividend are associated (or correlated) with BMO Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of BMO Canadian i.e., BMO Canadian and BMO Equal go up and down completely randomly.

Pair Corralation between BMO Canadian and BMO Equal

Assuming the 90 days trading horizon BMO Canadian Dividend is expected to generate 0.62 times more return on investment than BMO Equal. However, BMO Canadian Dividend is 1.61 times less risky than BMO Equal. It trades about 0.19 of its potential returns per unit of risk. BMO Equal Weight is currently generating about -0.17 per unit of risk. If you would invest  2,243  in BMO Canadian Dividend on August 28, 2024 and sell it today you would earn a total of  39.00  from holding BMO Canadian Dividend or generate 1.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

BMO Canadian Dividend  vs.  BMO Equal Weight

 Performance 
       Timeline  
BMO Canadian Dividend 

Risk-Adjusted Performance

25 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian Dividend are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Canadian may actually be approaching a critical reversion point that can send shares even higher in December 2024.
BMO Equal Weight 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BMO Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, BMO Equal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Canadian and BMO Equal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BMO Canadian and BMO Equal

The main advantage of trading using opposite BMO Canadian and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Canadian position performs unexpectedly, BMO Equal 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 Equal will offset losses from the drop in BMO Equal's long position.
The idea behind BMO Canadian Dividend and BMO Equal Weight 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.
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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