Correlation Between BMO Mid and BMO Core
Can any of the company-specific risk be diversified away by investing in both BMO Mid and BMO Core 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 Mid and BMO Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Mid Provincial and BMO Core Plus, you can compare the effects of market volatilities on BMO Mid and BMO Core 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 Mid with a short position of BMO Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and BMO Core.
Diversification Opportunities for BMO Mid and BMO Core
Very poor diversification
The 3 months correlation between BMO and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Provincial and BMO Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Core Plus and BMO Mid 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 Mid Provincial are associated (or correlated) with BMO Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Core Plus has no effect on the direction of BMO Mid i.e., BMO Mid and BMO Core go up and down completely randomly.
Pair Corralation between BMO Mid and BMO Core
Assuming the 90 days trading horizon BMO Mid is expected to generate 1.02 times less return on investment than BMO Core. But when comparing it to its historical volatility, BMO Mid Provincial is 1.15 times less risky than BMO Core. It trades about 0.13 of its potential returns per unit of risk. BMO Core Plus is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,659 in BMO Core Plus on August 28, 2024 and sell it today you would earn a total of 144.00 from holding BMO Core Plus or generate 5.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Mid Provincial vs. BMO Core Plus
Performance |
| Timeline |
| BMO Mid Provincial |
| BMO Core Plus |
BMO Mid and BMO Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Mid and BMO Core
The main advantage of trading using opposite BMO Mid and BMO Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid position performs unexpectedly, BMO Core 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 Core will offset losses from the drop in BMO Core's long position.| BMO Mid vs. Mackenzie Core Plus | BMO Mid vs. Mackenzie Unconstrained Bond | BMO Mid vs. Mackenzie Floating Rate | BMO Mid vs. Mackenzie Canadian Short |
| BMO Core vs. Mackenzie Core Plus | BMO Core vs. Mackenzie Unconstrained Bond | BMO Core vs. Mackenzie Floating Rate | BMO Core vs. Mackenzie Canadian Short |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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