Correlation Between BMO Preferred and BMO Europe
Can any of the company-specific risk be diversified away by investing in both BMO Preferred and BMO Europe 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 Preferred and BMO Europe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Preferred Share and BMO Europe High, you can compare the effects of market volatilities on BMO Preferred and BMO Europe 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 Preferred with a short position of BMO Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Preferred and BMO Europe.
Diversification Opportunities for BMO Preferred and BMO Europe
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BMO and BMO is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding BMO Preferred Share and BMO Europe High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Europe High and BMO Preferred 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 Preferred Share are associated (or correlated) with BMO Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Europe High has no effect on the direction of BMO Preferred i.e., BMO Preferred and BMO Europe go up and down completely randomly.
Pair Corralation between BMO Preferred and BMO Europe
Assuming the 90 days trading horizon BMO Preferred Share is expected to generate 0.87 times more return on investment than BMO Europe. However, BMO Preferred Share is 1.16 times less risky than BMO Europe. It trades about -0.14 of its potential returns per unit of risk. BMO Europe High is currently generating about -0.22 per unit of risk. If you would invest 1,911 in BMO Preferred Share on August 29, 2024 and sell it today you would lose (34.00) from holding BMO Preferred Share or give up 1.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Preferred Share vs. BMO Europe High
Performance |
| Timeline |
| BMO Preferred Share |
| BMO Europe High |
BMO Preferred and BMO Europe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Preferred and BMO Europe
The main advantage of trading using opposite BMO Preferred and BMO Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Preferred position performs unexpectedly, BMO Europe 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 Europe will offset losses from the drop in BMO Europe's long position.| BMO Preferred vs. BMO Preferred Share | BMO Preferred vs. BMO Put Write | BMO Preferred vs. BMO High Yield | BMO Preferred vs. BMO Put Write |
| BMO Europe vs. BMO Covered Call | BMO Europe vs. BMO High Dividend | BMO Europe vs. BMO Europe High | BMO Europe vs. BMO Covered Call |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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