Correlation Between BMO Low and BMO High
Can any of the company-specific risk be diversified away by investing in both BMO Low and BMO High 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 High 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 High Dividend, you can compare the effects of market volatilities on BMO Low and BMO High 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 High. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Low and BMO High.
Diversification Opportunities for BMO Low and BMO High
Almost no diversification
The 3 months correlation between BMO and BMO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and BMO High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO High Dividend 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 High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO High Dividend has no effect on the direction of BMO Low i.e., BMO Low and BMO High go up and down completely randomly.
Pair Corralation between BMO Low and BMO High
Assuming the 90 days trading horizon BMO Low Volatility is expected to generate 0.81 times more return on investment than BMO High. However, BMO Low Volatility is 1.23 times less risky than BMO High. It trades about 0.09 of its potential returns per unit of risk. BMO High Dividend is currently generating about 0.06 per unit of risk. If you would invest 5,556 in BMO Low Volatility on August 25, 2024 and sell it today you would earn a total of 69.00 from holding BMO Low Volatility or generate 1.24% 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 High Dividend
Performance |
| Timeline |
| BMO Low Volatility |
| BMO High Dividend |
BMO Low and BMO High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Low and BMO High
The main advantage of trading using opposite BMO Low and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Low position performs unexpectedly, BMO High 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 High will offset losses from the drop in BMO High'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 High vs. BMO Europe High | BMO High vs. BMO Covered Call | BMO High vs. BMO Covered Call | BMO High vs. BMO Europe High |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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