Correlation Between BMO Long and BMO Mid
Can any of the company-specific risk be diversified away by investing in both BMO Long and BMO Mid 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 Mid 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 Mid Provincial, you can compare the effects of market volatilities on BMO Long and BMO Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and BMO Mid.
Diversification Opportunities for BMO Long and BMO Mid
Poor diversification
The 3 months correlation between BMO and BMO is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Provincial and BMO Mid Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Provincial 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Mid Provincial has no effect on the direction of BMO Long i.e., BMO Long and BMO Mid go up and down completely randomly.
Pair Corralation between BMO Long and BMO Mid
Assuming the 90 days trading horizon BMO Long Provincial is expected to under-perform the BMO Mid. In addition to that, BMO Long is 1.99 times more volatile than BMO Mid Provincial. It trades about -0.08 of its total potential returns per unit of risk. BMO Mid Provincial is currently generating about 0.06 per unit of volatility. If you would invest 1,389 in BMO Mid Provincial on October 26, 2024 and sell it today you would earn a total of 6.00 from holding BMO Mid Provincial or generate 0.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Provincial vs. BMO Mid Provincial
Performance |
| Timeline |
| BMO Long Provincial |
| BMO Mid Provincial |
BMO Long and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and BMO Mid
The main advantage of trading using opposite BMO Long and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, BMO Mid 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 Mid will offset losses from the drop in BMO Mid'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 Mid vs. BMO Long Federal | BMO Mid vs. BMO Long Provincial | BMO Mid vs. Wealthsimple Developed Markets | BMO Mid vs. Wealthsimple North America |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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