Correlation Between BMO Short and BMO Real
Can any of the company-specific risk be diversified away by investing in both BMO Short and BMO Real 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 Short and BMO Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Short Provincial and BMO Real Return, you can compare the effects of market volatilities on BMO Short and BMO Real 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 Short with a short position of BMO Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Real.
Diversification Opportunities for BMO Short and BMO Real
Very weak diversification
The 3 months correlation between BMO and BMO is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Provincial and BMO Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Real Return and BMO Short 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 Short Provincial are associated (or correlated) with BMO Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Real Return has no effect on the direction of BMO Short i.e., BMO Short and BMO Real go up and down completely randomly.
Pair Corralation between BMO Short and BMO Real
Assuming the 90 days trading horizon BMO Short is expected to generate 1.19 times less return on investment than BMO Real. But when comparing it to its historical volatility, BMO Short Provincial is 4.35 times less risky than BMO Real. It trades about 0.13 of its potential returns per unit of risk. BMO Real Return is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,362 in BMO Real Return on August 29, 2024 and sell it today you would earn a total of 77.00 from holding BMO Real Return or generate 5.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Provincial vs. BMO Real Return
Performance |
| Timeline |
| BMO Short Provincial |
| BMO Real Return |
BMO Short and BMO Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and BMO Real
The main advantage of trading using opposite BMO Short and BMO Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, BMO Real 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 Real will offset losses from the drop in BMO Real's long position.| BMO Short vs. BMO Short Federal | BMO Short vs. BMO Short Corporate | BMO Short vs. BMO Mid Corporate | BMO Short vs. BMO Long Corporate |
| BMO Real vs. BMO Long Corporate | BMO Real vs. BMO Short Provincial | BMO Real vs. BMO Short Federal | BMO Real vs. BMO Emerging Markets |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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