Correlation Between BMO Long and BMO Mid
Can any of the company-specific risk be diversified away by investing in both BMO Long 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 Long 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 Long Federal and BMO Mid Provincial, you can compare the effects of market volatilities on BMO Long 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 Long with a short position of BMO Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and BMO Mid.
Diversification Opportunities for BMO Long and BMO Mid
Very poor diversification
The 3 months correlation between BMO and BMO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Federal 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 Long 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 Long Federal 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 Long i.e., BMO Long and BMO Mid go up and down completely randomly.
Pair Corralation between BMO Long and BMO Mid
Assuming the 90 days trading horizon BMO Long Federal is expected to generate 2.58 times more return on investment than BMO Mid. However, BMO Long is 2.58 times more volatile than BMO Mid Provincial. It trades about -0.07 of its potential returns per unit of risk. BMO Mid Provincial is currently generating about -0.18 per unit of risk. If you would invest 1,299 in BMO Long Federal on August 25, 2024 and sell it today you would lose (16.00) from holding BMO Long Federal or give up 1.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Federal vs. BMO Mid Provincial
Performance |
| Timeline |
| BMO Long Federal |
| BMO Mid Provincial |
BMO Long and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and BMO Mid
The main advantage of trading using opposite BMO Long and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long 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 Long vs. iShares MSCI Emerging | BMO Long vs. iShares MSCI Global | BMO Long vs. iShares Core Canadian | BMO Long vs. Vanguard Total Market |
| 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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