Correlation Between BMO Long and BMO Short
Can any of the company-specific risk be diversified away by investing in both BMO Long and BMO Short 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 Long and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Long Provincial and BMO Short Federal, you can compare the effects of market volatilities on BMO Long and BMO Short 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 Long with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and BMO Short.
Diversification Opportunities for BMO Long and BMO Short
Very weak diversification
The 3 months correlation between BMO and BMO is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Provincial and BMO Short Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Federal and BMO Long 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 Long Provincial are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Federal has no effect on the direction of BMO Long i.e., BMO Long and BMO Short go up and down completely randomly.
Pair Corralation between BMO Long and BMO Short
Assuming the 90 days trading horizon BMO Long Provincial is expected to generate 7.05 times more return on investment than BMO Short. However, BMO Long is 7.05 times more volatile than BMO Short Federal. It trades about 0.13 of its potential returns per unit of risk. BMO Short Federal is currently generating about -0.06 per unit of risk. If you would invest 1,237 in BMO Long Provincial on August 28, 2024 and sell it today you would earn a total of 28.00 from holding BMO Long Provincial or generate 2.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Provincial vs. BMO Short Federal
Performance |
| Timeline |
| BMO Long Provincial |
| BMO Short Federal |
BMO Long and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and BMO Short
The main advantage of trading using opposite BMO Long and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| BMO Long vs. BMO Long Corporate | BMO Long vs. BMO Short Provincial | BMO Long vs. BMO Mid Provincial | BMO Long vs. BMO Mid Corporate |
| BMO Short vs. BMO Short Provincial | BMO Short vs. BMO Short Corporate | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
Other Complementary Tools
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Bonds Directory Find actively traded corporate debentures issued by US companies |