Correlation Between BMO Short and BMO Mid
Can any of the company-specific risk be diversified away by investing in both BMO Short 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 Short 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 Short Federal and BMO Mid Corporate, you can compare the effects of market volatilities on BMO Short 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 Short with a short position of BMO Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Mid.
Diversification Opportunities for BMO Short and BMO Mid
Almost no diversification
The 3 months correlation between BMO and BMO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Federal and BMO Mid Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Corporate 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 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 Corporate has no effect on the direction of BMO Short i.e., BMO Short and BMO Mid go up and down completely randomly.
Pair Corralation between BMO Short and BMO Mid
Assuming the 90 days trading horizon BMO Short is expected to generate 4.82 times less return on investment than BMO Mid. But when comparing it to its historical volatility, BMO Short Federal is 2.88 times less risky than BMO Mid. It trades about 0.12 of its potential returns per unit of risk. BMO Mid Corporate is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,533 in BMO Mid Corporate on September 1, 2024 and sell it today you would earn a total of 27.00 from holding BMO Mid Corporate or generate 1.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Federal vs. BMO Mid Corporate
Performance |
| Timeline |
| BMO Short Federal |
| BMO Mid Corporate |
BMO Short and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and BMO Mid
The main advantage of trading using opposite BMO Short and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short 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 Short vs. Vanguard Total Market | BMO Short vs. iShares High Quality | BMO Short vs. iShares 1 10Yr Laddered | BMO Short vs. iShares Canadian HYBrid |
| BMO Mid vs. BMO Long Corporate | BMO Mid vs. BMO Short Corporate | BMO Mid vs. BMO High Yield | BMO Mid vs. BMO Short 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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