Correlation Between BMO Ultra and Dow Jones
Can any of the company-specific risk be diversified away by investing in both BMO Ultra and Dow Jones 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 Ultra and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Ultra Short Term and Dow Jones Industrial, you can compare the effects of market volatilities on BMO Ultra and Dow Jones 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 Ultra with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Ultra and Dow Jones.
Diversification Opportunities for BMO Ultra and Dow Jones
Very poor diversification
The 3 months correlation between BMO and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BMO Ultra Short Term and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and BMO Ultra 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 Ultra Short Term are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of BMO Ultra i.e., BMO Ultra and Dow Jones go up and down completely randomly.
Pair Corralation between BMO Ultra and Dow Jones
Assuming the 90 days trading horizon BMO Ultra is expected to generate 19.36 times less return on investment than Dow Jones. But when comparing it to its historical volatility, BMO Ultra Short Term is 37.42 times less risky than Dow Jones. It trades about 0.47 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Ultra Short Term vs. Dow Jones Industrial
Performance |
| Timeline |
BMO Ultra and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
BMO Ultra Short Term
Pair trading matchups for BMO Ultra
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with BMO Ultra and Dow Jones
The main advantage of trading using opposite BMO Ultra and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Ultra position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| BMO Ultra vs. Mackenzie Canadian Aggregate | BMO Ultra vs. Mackenzie Canadian Short | BMO Ultra vs. Mackenzie Core Plus | BMO Ultra vs. Mackenzie Investment Grade |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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