Correlation Between BMO Long and Dynamic Active
Can any of the company-specific risk be diversified away by investing in both BMO Long and Dynamic Active 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 Long and Dynamic Active into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Long Corporate and Dynamic Active Crossover, you can compare the effects of market volatilities on BMO Long and Dynamic Active 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 Long with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and Dynamic Active.
Diversification Opportunities for BMO Long and Dynamic Active
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and Dynamic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate and Dynamic Active Crossover in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Crossover and BMO Long 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 Long Corporate are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Crossover has no effect on the direction of BMO Long i.e., BMO Long and Dynamic Active go up and down completely randomly.
Pair Corralation between BMO Long and Dynamic Active
Assuming the 90 days trading horizon BMO Long Corporate is expected to generate 2.07 times more return on investment than Dynamic Active. However, BMO Long is 2.07 times more volatile than Dynamic Active Crossover. It trades about 0.08 of its potential returns per unit of risk. Dynamic Active Crossover is currently generating about 0.13 per unit of risk. If you would invest 1,352 in BMO Long Corporate on September 3, 2024 and sell it today you would earn a total of 239.00 from holding BMO Long Corporate or generate 17.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Corporate vs. Dynamic Active Crossover
Performance |
| Timeline |
| BMO Long Corporate |
| Dynamic Active Crossover |
BMO Long and Dynamic Active Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and Dynamic Active
The main advantage of trading using opposite BMO Long and Dynamic Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, Dynamic Active 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 Dynamic Active will offset losses from the drop in Dynamic Active's long position.| BMO Long vs. BMO Mid Corporate | BMO Long vs. BMO Short Corporate | BMO Long vs. BMO High Yield | BMO Long vs. BMO Emerging Markets |
| Dynamic Active vs. Dynamic Active Canadian | Dynamic Active vs. Dynamic Active Dividend | Dynamic Active vs. Dynamic Active Preferred | Dynamic Active vs. Dynamic Active Tactical |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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