Correlation Between BMO Government and BMO Short
Can any of the company-specific risk be diversified away by investing in both BMO Government and BMO Short 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 Government and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Government Bond and BMO Short Term Bond, you can compare the effects of market volatilities on BMO Government and BMO Short 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 Government with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Government and BMO Short.
Diversification Opportunities for BMO Government and BMO Short
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding BMO Government Bond and BMO Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term and BMO Government 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 Government Bond are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Term has no effect on the direction of BMO Government i.e., BMO Government and BMO Short go up and down completely randomly.
Pair Corralation between BMO Government and BMO Short
Assuming the 90 days trading horizon BMO Government Bond is expected to under-perform the BMO Short. In addition to that, BMO Government is 2.38 times more volatile than BMO Short Term Bond. It trades about -0.07 of its total potential returns per unit of risk. BMO Short Term Bond is currently generating about -0.06 per unit of volatility. If you would invest 4,838 in BMO Short Term Bond on August 29, 2024 and sell it today you would lose (10.00) from holding BMO Short Term Bond or give up 0.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Government Bond vs. BMO Short Term Bond
Performance |
| Timeline |
| BMO Government Bond |
| BMO Short Term |
BMO Government and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Government and BMO Short
The main advantage of trading using opposite BMO Government and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Government position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| BMO Government vs. BMO Aggregate Bond | BMO Government vs. iShares Canadian Universe | BMO Government vs. BMO Core Plus | BMO Government vs. BMO Discount Bond |
| BMO Short vs. BMO Corporate Bond | BMO Short vs. BMO Government Bond | BMO Short vs. BMO Ultra Short Term | BMO Short vs. BMO Short Term IG |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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