Correlation Between BMO Junior and Dow Jones
Can any of the company-specific risk be diversified away by investing in both BMO Junior and Dow Jones 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 Junior and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Junior Gold and Dow Jones Industrial, you can compare the effects of market volatilities on BMO Junior and Dow Jones 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 Junior with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Junior and Dow Jones.
Diversification Opportunities for BMO Junior and Dow Jones
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and Dow is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding BMO Junior Gold and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and BMO Junior 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 Junior Gold are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of BMO Junior i.e., BMO Junior and Dow Jones go up and down completely randomly.
Pair Corralation between BMO Junior and Dow Jones
Assuming the 90 days trading horizon BMO Junior Gold is expected to under-perform the Dow Jones. In addition to that, BMO Junior is 2.16 times more volatile than Dow Jones Industrial. It trades about -0.1 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 per unit of volatility. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Junior Gold vs. Dow Jones Industrial
Performance |
| Timeline |
BMO Junior and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
BMO Junior Gold
Pair trading matchups for BMO Junior
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with BMO Junior and Dow Jones
The main advantage of trading using opposite BMO Junior and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Junior position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| BMO Junior vs. BMO Equal Weight | BMO Junior vs. iShares SPTSX Global | BMO Junior vs. BMO SPTSX Equal | BMO Junior vs. iShares Gold Bullion |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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