Correlation Between BMO Equal and BMO Tactical
Can any of the company-specific risk be diversified away by investing in both BMO Equal and BMO Tactical 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 Equal and BMO Tactical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Equal Weight and BMO Tactical Dividend, you can compare the effects of market volatilities on BMO Equal and BMO Tactical 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 Equal with a short position of BMO Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and BMO Tactical.
Diversification Opportunities for BMO Equal and BMO Tactical
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 Equal Weight and BMO Tactical Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Tactical Dividend and BMO Equal 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 Equal Weight are associated (or correlated) with BMO Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Tactical Dividend has no effect on the direction of BMO Equal i.e., BMO Equal and BMO Tactical go up and down completely randomly.
Pair Corralation between BMO Equal and BMO Tactical
Assuming the 90 days trading horizon BMO Equal Weight is expected to generate 3.28 times more return on investment than BMO Tactical. However, BMO Equal is 3.28 times more volatile than BMO Tactical Dividend. It trades about 0.06 of its potential returns per unit of risk. BMO Tactical Dividend is currently generating about 0.02 per unit of risk. If you would invest 9,407 in BMO Equal Weight on September 1, 2024 and sell it today you would earn a total of 1,282 from holding BMO Equal Weight or generate 13.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Equal Weight vs. BMO Tactical Dividend
Performance |
| Timeline |
| BMO Equal Weight |
| BMO Tactical Dividend |
BMO Equal and BMO Tactical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and BMO Tactical
The main advantage of trading using opposite BMO Equal and BMO Tactical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, BMO Tactical 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 Tactical will offset losses from the drop in BMO Tactical's long position.The idea behind BMO Equal Weight and BMO Tactical Dividend pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| BMO Tactical vs. BMO Premium Yield | BMO Tactical vs. BMO Europe High | BMO Tactical vs. BMO Europe High | BMO Tactical vs. BMO SPTSX Equal |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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