Correlation Between BMO MSCI and BMO High
Can any of the company-specific risk be diversified away by investing in both BMO MSCI 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 MSCI 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 MSCI EAFE and BMO High Yield, you can compare the effects of market volatilities on BMO MSCI 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 MSCI with a short position of BMO High. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and BMO High.
Diversification Opportunities for BMO MSCI and BMO High
Significant diversification
The 3 months correlation between BMO and BMO is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE 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 MSCI 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 MSCI EAFE 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 MSCI i.e., BMO MSCI and BMO High go up and down completely randomly.
Pair Corralation between BMO MSCI and BMO High
Assuming the 90 days trading horizon BMO MSCI EAFE is expected to under-perform the BMO High. In addition to that, BMO MSCI is 2.08 times more volatile than BMO High Yield. It trades about -0.19 of its total potential returns per unit of risk. BMO High Yield is currently generating about 0.09 per unit of volatility. If you would invest 1,128 in BMO High Yield on August 29, 2024 and sell it today you would earn a total of 6.00 from holding BMO High Yield or generate 0.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO MSCI EAFE vs. BMO High Yield
Performance |
| Timeline |
| BMO MSCI EAFE |
| BMO High Yield |
BMO MSCI and BMO High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and BMO High
The main advantage of trading using opposite BMO MSCI and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI 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 MSCI vs. Mackenzie Canadian Equity | BMO MSCI vs. BMO MSCI Emerging | BMO MSCI vs. Mackenzie Large Cap | BMO MSCI vs. BMO Long Federal |
| 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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