Correlation Between BMO SP and BMO Covered
Can any of the company-specific risk be diversified away by investing in both BMO SP and BMO Covered 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 Covered 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 Covered Call, you can compare the effects of market volatilities on BMO SP and BMO Covered 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 Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and BMO Covered.
Diversification Opportunities for BMO SP and BMO Covered
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BMO SP i.e., BMO SP and BMO Covered go up and down completely randomly.
Pair Corralation between BMO SP and BMO Covered
Assuming the 90 days trading horizon BMO SP is expected to generate 1.01 times less return on investment than BMO Covered. In addition to that, BMO SP is 1.27 times more volatile than BMO Covered Call. It trades about 0.16 of its total potential returns per unit of risk. BMO Covered Call is currently generating about 0.2 per unit of volatility. If you would invest 2,600 in BMO Covered Call on August 29, 2024 and sell it today you would earn a total of 202.00 from holding BMO Covered Call or generate 7.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SP 500 vs. BMO Covered Call
Performance |
| Timeline |
| BMO SP 500 |
| BMO Covered Call |
BMO SP and BMO Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and BMO Covered
The main advantage of trading using opposite BMO SP and BMO Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, BMO Covered 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 Covered will offset losses from the drop in BMO Covered'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 Covered vs. BMO High Dividend | BMO Covered vs. BMO Europe High | BMO Covered vs. BMO Covered Call | BMO Covered vs. BMO Europe High |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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