Correlation Between BMO Equal and BMO Dow
Can any of the company-specific risk be diversified away by investing in both BMO Equal and BMO Dow 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 Equal and BMO Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Equal Weight and BMO Dow Jones, you can compare the effects of market volatilities on BMO Equal and BMO Dow 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 Equal with a short position of BMO Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and BMO Dow.
Diversification Opportunities for BMO Equal and BMO Dow
Excellent diversification
The 3 months correlation between BMO and BMO is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and BMO Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Dow Jones and BMO Equal 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 Equal Weight are associated (or correlated) with BMO Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Dow Jones has no effect on the direction of BMO Equal i.e., BMO Equal and BMO Dow go up and down completely randomly.
Pair Corralation between BMO Equal and BMO Dow
Assuming the 90 days trading horizon BMO Equal is expected to generate 1.82 times less return on investment than BMO Dow. In addition to that, BMO Equal is 1.2 times more volatile than BMO Dow Jones. It trades about 0.08 of its total potential returns per unit of risk. BMO Dow Jones is currently generating about 0.17 per unit of volatility. If you would invest 5,077 in BMO Dow Jones on August 25, 2024 and sell it today you would earn a total of 1,776 from holding BMO Dow Jones or generate 34.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Equal Weight vs. BMO Dow Jones
Performance |
| Timeline |
| BMO Equal Weight |
| BMO Dow Jones |
BMO Equal and BMO Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and BMO Dow
The main advantage of trading using opposite BMO Equal and BMO Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, BMO Dow 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 Dow will offset losses from the drop in BMO Dow's long position.| BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. BMO Equal Weight | BMO Equal vs. BMO Covered Call | BMO Equal vs. BMO SPTSX Equal |
| BMO Dow vs. BMO SP 500 | BMO Dow vs. BMO NASDAQ 100 | BMO Dow vs. BMO Equal Weight | BMO Dow vs. BMO Equal Weight |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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