Correlation Between BMO Short and BMO Corporate
Can any of the company-specific risk be diversified away by investing in both BMO Short and BMO Corporate 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 BMO Corporate 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 BMO Corporate Bond, you can compare the effects of market volatilities on BMO Short and BMO Corporate 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 BMO Corporate. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Corporate.
Diversification Opportunities for BMO Short and BMO Corporate
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Federal and BMO Corporate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Corporate Bond 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 BMO Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Corporate Bond has no effect on the direction of BMO Short i.e., BMO Short and BMO Corporate go up and down completely randomly.
Pair Corralation between BMO Short and BMO Corporate
Assuming the 90 days trading horizon BMO Short Federal is expected to under-perform the BMO Corporate. But the etf apears to be less risky and, when comparing its historical volatility, BMO Short Federal is 2.45 times less risky than BMO Corporate. The etf trades about -0.06 of its potential returns per unit of risk. The BMO Corporate Bond is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,693 in BMO Corporate Bond on August 28, 2024 and sell it today you would earn a total of 34.00 from holding BMO Corporate Bond or generate 0.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Federal vs. BMO Corporate Bond
Performance |
| Timeline |
| BMO Short Federal |
| BMO Corporate Bond |
BMO Short and BMO Corporate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and BMO Corporate
The main advantage of trading using opposite BMO Short and BMO Corporate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, BMO Corporate 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 Corporate will offset losses from the drop in BMO Corporate's long position.| BMO Short vs. BMO Short Provincial | BMO Short vs. BMO Short Corporate | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate |
| BMO Corporate vs. BMO Government Bond | BMO Corporate vs. BMO High Yield | BMO Corporate vs. BMO Long Corporate | BMO Corporate vs. BMO Long Provincial |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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