Correlation Between BMO Long and BMO Real
Can any of the company-specific risk be diversified away by investing in both BMO Long and BMO Real 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 BMO Real 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 BMO Real Return, you can compare the effects of market volatilities on BMO Long and BMO Real 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 BMO Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and BMO Real.
Diversification Opportunities for BMO Long and BMO Real
Very poor diversification
The 3 months correlation between BMO and BMO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate and BMO Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Real Return 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 BMO Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Real Return has no effect on the direction of BMO Long i.e., BMO Long and BMO Real go up and down completely randomly.
Pair Corralation between BMO Long and BMO Real
Assuming the 90 days trading horizon BMO Long is expected to generate 2.49 times less return on investment than BMO Real. In addition to that, BMO Long is 1.2 times more volatile than BMO Real Return. It trades about 0.08 of its total potential returns per unit of risk. BMO Real Return is currently generating about 0.23 per unit of volatility. If you would invest 1,440 in BMO Real Return on November 3, 2024 and sell it today you would earn a total of 36.00 from holding BMO Real Return or generate 2.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Corporate vs. BMO Real Return
Performance |
| Timeline |
| BMO Long Corporate |
| BMO Real Return |
BMO Long and BMO Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and BMO Real
The main advantage of trading using opposite BMO Long and BMO Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, BMO Real 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 Real will offset losses from the drop in BMO Real'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 Long Provincial |
| BMO Real vs. BMO Long Corporate | BMO Real vs. BMO Short Provincial | BMO Real vs. BMO Short Federal | BMO Real vs. BMO Emerging Markets |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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