Correlation Between BMO Low and BMO Global
Can any of the company-specific risk be diversified away by investing in both BMO Low and BMO Global 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 Low and BMO Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Low Volatility and BMO Global Infrastructure, you can compare the effects of market volatilities on BMO Low and BMO Global 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 Low with a short position of BMO Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Low and BMO Global.
Diversification Opportunities for BMO Low and BMO Global
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and BMO Global Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Infrastructure and BMO Low 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 Low Volatility are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Infrastructure has no effect on the direction of BMO Low i.e., BMO Low and BMO Global go up and down completely randomly.
Pair Corralation between BMO Low and BMO Global
Assuming the 90 days trading horizon BMO Low is expected to generate 1.42 times less return on investment than BMO Global. But when comparing it to its historical volatility, BMO Low Volatility is 1.26 times less risky than BMO Global. It trades about 0.07 of its potential returns per unit of risk. BMO Global Infrastructure is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,202 in BMO Global Infrastructure on August 29, 2024 and sell it today you would earn a total of 1,216 from holding BMO Global Infrastructure or generate 28.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Low Volatility vs. BMO Global Infrastructure
Performance |
| Timeline |
| BMO Low Volatility |
| BMO Global Infrastructure |
BMO Low and BMO Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Low and BMO Global
The main advantage of trading using opposite BMO Low and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Low position performs unexpectedly, BMO Global 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 Global will offset losses from the drop in BMO Global's long position.| BMO Low vs. BMO Low Volatility | BMO Low vs. BMO MSCI USA | BMO Low vs. BMO Equal Weight | BMO Low vs. BMO Dividend ETF |
| BMO Global vs. BMO Equal Weight | BMO Global vs. BMO Low Volatility | BMO Global vs. BMO Equal Weight | BMO Global vs. BMO MSCI Emerging |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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