Correlation Between BMO Preferred and BMO Covered
Can any of the company-specific risk be diversified away by investing in both BMO Preferred and BMO Covered 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 Covered 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 Covered Call, you can compare the effects of market volatilities on BMO Preferred and BMO Covered 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 Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Preferred and BMO Covered.
Diversification Opportunities for BMO Preferred and BMO Covered
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BMO Preferred Share and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BMO Preferred i.e., BMO Preferred and BMO Covered go up and down completely randomly.
Pair Corralation between BMO Preferred and BMO Covered
Assuming the 90 days trading horizon BMO Preferred is expected to generate 1.84 times less return on investment than BMO Covered. In addition to that, BMO Preferred is 1.06 times more volatile than BMO Covered Call. It trades about 0.08 of its total potential returns per unit of risk. BMO Covered Call is currently generating about 0.16 per unit of volatility. If you would invest 1,005 in BMO Covered Call on September 3, 2024 and sell it today you would earn a total of 104.00 from holding BMO Covered Call or generate 10.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Preferred Share vs. BMO Covered Call
Performance |
| Timeline |
| BMO Preferred Share |
| BMO Covered Call |
BMO Preferred and BMO Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Preferred and BMO Covered
The main advantage of trading using opposite BMO Preferred and BMO Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Preferred position performs unexpectedly, BMO Covered 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 Covered will offset losses from the drop in BMO Covered'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 Covered vs. International Zeolite Corp | BMO Covered vs. European Residential Real | BMO Covered vs. Financial 15 Split | BMO Covered vs. Rubicon Organics |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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