Correlation Between BMO Long and BMO Ultra
Can any of the company-specific risk be diversified away by investing in both BMO Long and BMO Ultra 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 Ultra 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 Ultra Short Term, you can compare the effects of market volatilities on BMO Long and BMO Ultra 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 Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and BMO Ultra.
Diversification Opportunities for BMO Long and BMO Ultra
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 Long Corporate and BMO Ultra Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Ultra Short 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 Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Ultra Short has no effect on the direction of BMO Long i.e., BMO Long and BMO Ultra go up and down completely randomly.
Pair Corralation between BMO Long and BMO Ultra
Assuming the 90 days trading horizon BMO Long Corporate is expected to generate 21.03 times more return on investment than BMO Ultra. However, BMO Long is 21.03 times more volatile than BMO Ultra Short Term. It trades about 0.05 of its potential returns per unit of risk. BMO Ultra Short Term is currently generating about 0.61 per unit of risk. If you would invest 1,381 in BMO Long Corporate on September 2, 2024 and sell it today you would earn a total of 199.00 from holding BMO Long Corporate or generate 14.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Corporate vs. BMO Ultra Short Term
Performance |
| Timeline |
| BMO Long Corporate |
| BMO Ultra Short |
BMO Long and BMO Ultra Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and BMO Ultra
The main advantage of trading using opposite BMO Long and BMO Ultra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, BMO Ultra 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 Ultra will offset losses from the drop in BMO Ultra's long position.| BMO Long vs. iShares MSCI Emerging | BMO Long vs. iShares MSCI Global | BMO Long vs. iShares Core Canadian | BMO Long vs. Vanguard Total Market |
| BMO Ultra vs. BMO Short Corporate | BMO Ultra vs. BMO Short Provincial | BMO Ultra vs. BMO Long Corporate | BMO Ultra vs. BMO Real Return |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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