Correlation Between BMO SP and BMO High
Can any of the company-specific risk be diversified away by investing in both BMO SP and BMO High 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 SP and BMO High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO SP 500 and BMO High Yield, you can compare the effects of market volatilities on BMO SP and BMO High 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 SP with a short position of BMO High. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and BMO High.
Diversification Opportunities for BMO SP and BMO High
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 SP 500 and BMO High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO High Yield and BMO SP 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 SP 500 are associated (or correlated) with BMO High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO High Yield has no effect on the direction of BMO SP i.e., BMO SP and BMO High go up and down completely randomly.
Pair Corralation between BMO SP and BMO High
Assuming the 90 days trading horizon BMO SP 500 is expected to generate 1.46 times more return on investment than BMO High. However, BMO SP is 1.46 times more volatile than BMO High Yield. It trades about 0.11 of its potential returns per unit of risk. BMO High Yield is currently generating about 0.07 per unit of risk. If you would invest 5,423 in BMO SP 500 on August 28, 2024 and sell it today you would earn a total of 2,851 from holding BMO SP 500 or generate 52.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SP 500 vs. BMO High Yield
Performance |
| Timeline |
| BMO SP 500 |
| BMO High Yield |
BMO SP and BMO High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and BMO High
The main advantage of trading using opposite BMO SP and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, BMO High 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 High will offset losses from the drop in BMO High's long position.| BMO SP vs. BMO MSCI EAFE | BMO SP vs. BMO Dow Jones | BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO MSCI Emerging |
| BMO High vs. BMO Mid Federal | BMO High vs. BMO Short Corporate | BMO High vs. BMO Emerging Markets | BMO High vs. BMO Long 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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