Correlation Between BMO Mid and BMO Government
Can any of the company-specific risk be diversified away by investing in both BMO Mid and BMO Government 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 Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Mid Term IG and BMO Government Bond, you can compare the effects of market volatilities on BMO Mid and BMO Government 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 Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and BMO Government.
Diversification Opportunities for BMO Mid and BMO Government
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Term IG and BMO Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Government Bond 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 Term IG are associated (or correlated) with BMO Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Government Bond has no effect on the direction of BMO Mid i.e., BMO Mid and BMO Government go up and down completely randomly.
Pair Corralation between BMO Mid and BMO Government
Assuming the 90 days trading horizon BMO Mid is expected to generate 1.19 times less return on investment than BMO Government. But when comparing it to its historical volatility, BMO Mid Term IG is 1.38 times less risky than BMO Government. It trades about 0.2 of its potential returns per unit of risk. BMO Government Bond is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 4,587 in BMO Government Bond on September 3, 2024 and sell it today you would earn a total of 82.00 from holding BMO Government Bond or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Mid Term IG vs. BMO Government Bond
Performance |
| Timeline |
| BMO Mid Term |
| BMO Government Bond |
BMO Mid and BMO Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Mid and BMO Government
The main advantage of trading using opposite BMO Mid and BMO Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid position performs unexpectedly, BMO Government 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 Government will offset losses from the drop in BMO Government's long position.| BMO Mid vs. BMO Mid Corporate | BMO Mid vs. BMO High Yield | BMO Mid vs. BMO Mid Provincial | BMO Mid vs. BMO Emerging Markets |
| BMO Government vs. BMO Short Corporate | BMO Government vs. BMO High Yield | BMO Government vs. iShares Core Canadian | BMO Government vs. Harvest Global REIT |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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