Correlation Between BMO Put and BMO Preferred
Can any of the company-specific risk be diversified away by investing in both BMO Put and BMO Preferred 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 Put and BMO Preferred into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Put Write and BMO Preferred Share, you can compare the effects of market volatilities on BMO Put and BMO Preferred 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 Put with a short position of BMO Preferred. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Put and BMO Preferred.
Diversification Opportunities for BMO Put and BMO Preferred
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BMO Put Write and BMO Preferred Share in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Preferred Share and BMO Put 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 Put Write are associated (or correlated) with BMO Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Preferred Share has no effect on the direction of BMO Put i.e., BMO Put and BMO Preferred go up and down completely randomly.
Pair Corralation between BMO Put and BMO Preferred
Assuming the 90 days trading horizon BMO Put is expected to generate 1.41 times less return on investment than BMO Preferred. But when comparing it to its historical volatility, BMO Put Write is 1.19 times less risky than BMO Preferred. It trades about 0.09 of its potential returns per unit of risk. BMO Preferred Share is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,569 in BMO Preferred Share on September 1, 2024 and sell it today you would earn a total of 304.00 from holding BMO Preferred Share or generate 19.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Put Write vs. BMO Preferred Share
Performance |
| Timeline |
| BMO Put Write |
| BMO Preferred Share |
BMO Put and BMO Preferred Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Put and BMO Preferred
The main advantage of trading using opposite BMO Put and BMO Preferred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Put position performs unexpectedly, BMO Preferred 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 Preferred will offset losses from the drop in BMO Preferred's long position.| BMO Put vs. BMO Europe High | BMO Put vs. BMO High Dividend | BMO Put vs. BMO Europe High | BMO Put vs. BMO Premium Yield |
| BMO Preferred vs. BMO Covered Call | BMO Preferred vs. Forstrong Global Income | BMO Preferred vs. BMO Aggregate Bond | BMO Preferred vs. iShares Canadian HYBrid |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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