Correlation Between BMO Short and First Trust
Can any of the company-specific risk be diversified away by investing in both BMO Short and First Trust 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 Short and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Short Federal and First Trust SMID, you can compare the effects of market volatilities on BMO Short and First Trust 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 Short with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and First Trust.
Diversification Opportunities for BMO Short and First Trust
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and First is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Federal and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID and BMO Short 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 Short Federal are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust SMID has no effect on the direction of BMO Short i.e., BMO Short and First Trust go up and down completely randomly.
Pair Corralation between BMO Short and First Trust
Assuming the 90 days trading horizon BMO Short is expected to generate 22.42 times less return on investment than First Trust. But when comparing it to its historical volatility, BMO Short Federal is 14.67 times less risky than First Trust. It trades about 0.19 of its potential returns per unit of risk. First Trust SMID is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 2,154 in First Trust SMID on September 1, 2024 and sell it today you would earn a total of 287.00 from holding First Trust SMID or generate 13.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Short Federal vs. First Trust SMID
Performance |
| Timeline |
| BMO Short Federal |
| First Trust SMID |
BMO Short and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and First Trust
The main advantage of trading using opposite BMO Short and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| BMO Short vs. BMO Short Term Bond | BMO Short vs. BMO Canadian Bank | BMO Short vs. BMO Aggregate Bond | BMO Short vs. BMO Balanced ETF |
| First Trust vs. Brompton Global Dividend | First Trust vs. Global Healthcare Income | First Trust vs. Tech Leaders Income | First Trust vs. Brompton North American |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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