Correlation Between BMO Ultra and BMO Short
Can any of the company-specific risk be diversified away by investing in both BMO Ultra 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 Ultra 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 Ultra Short Term and BMO Short Term Bond, you can compare the effects of market volatilities on BMO Ultra 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 Ultra with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Ultra and BMO Short.
Diversification Opportunities for BMO Ultra and BMO Short
Very weak diversification
The 3 months correlation between BMO and BMO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding BMO Ultra Short Term and BMO Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term 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 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 Term has no effect on the direction of BMO Ultra i.e., BMO Ultra and BMO Short go up and down completely randomly.
Pair Corralation between BMO Ultra and BMO Short
Assuming the 90 days trading horizon BMO Ultra Short Term is expected to generate 0.17 times more return on investment than BMO Short. However, BMO Ultra Short Term is 5.85 times less risky than BMO Short. It trades about 0.53 of its potential returns per unit of risk. BMO Short Term Bond is currently generating about -0.06 per unit of risk. If you would invest 4,890 in BMO Ultra Short Term on August 29, 2024 and sell it today you would earn a total of 15.00 from holding BMO Ultra Short Term or generate 0.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Ultra Short Term vs. BMO Short Term Bond
Performance |
| Timeline |
| BMO Ultra Short |
| BMO Short Term |
BMO Ultra and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Ultra and BMO Short
The main advantage of trading using opposite BMO Ultra and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Ultra 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 Ultra vs. iShares Canadian Short | BMO Ultra vs. iShares Core Canadian | BMO Ultra vs. BMO Short Corporate | BMO Ultra vs. Vanguard Canadian Short |
| BMO Short vs. BMO Corporate Bond | BMO Short vs. BMO Government Bond | BMO Short vs. BMO Ultra Short Term | BMO Short vs. BMO Short Term IG |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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