Correlation Between BMO Preferred and BMO High
Can any of the company-specific risk be diversified away by investing in both BMO Preferred 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 Preferred 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 Preferred Share and BMO High Yield, you can compare the effects of market volatilities on BMO Preferred 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 Preferred with a short position of BMO High. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Preferred and BMO High.
Diversification Opportunities for BMO Preferred and BMO High
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding BMO Preferred Share 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 Preferred 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 Preferred Share 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 Preferred i.e., BMO Preferred and BMO High go up and down completely randomly.
Pair Corralation between BMO Preferred and BMO High
Assuming the 90 days trading horizon BMO Preferred is expected to generate 1.96 times less return on investment than BMO High. In addition to that, BMO Preferred is 1.81 times more volatile than BMO High Yield. It trades about 0.02 of its total potential returns per unit of risk. BMO High Yield is currently generating about 0.07 per unit of volatility. If you would invest 981.00 in BMO High Yield on September 1, 2024 and sell it today you would earn a total of 152.00 from holding BMO High Yield or generate 15.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Preferred Share vs. BMO High Yield
Performance |
| Timeline |
| BMO Preferred Share |
| BMO High Yield |
BMO Preferred and BMO High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Preferred and BMO High
The main advantage of trading using opposite BMO Preferred and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Preferred 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 Preferred vs. BMO Preferred Share | BMO Preferred vs. BMO High Yield | BMO Preferred vs. BMO Put Write | BMO Preferred vs. BMO Laddered Preferred |
| 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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