Correlation Between BMO Covered and BMO Dividend
Can any of the company-specific risk be diversified away by investing in both BMO Covered and BMO Dividend 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 Covered and BMO Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Covered Call and BMO Dividend CAD, you can compare the effects of market volatilities on BMO Covered and BMO Dividend 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 Covered with a short position of BMO Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and BMO Dividend.
Diversification Opportunities for BMO Covered and BMO Dividend
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and BMO Dividend CAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Dividend CAD and BMO Covered 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 Covered Call are associated (or correlated) with BMO Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Dividend CAD has no effect on the direction of BMO Covered i.e., BMO Covered and BMO Dividend go up and down completely randomly.
Pair Corralation between BMO Covered and BMO Dividend
Assuming the 90 days trading horizon BMO Covered Call is expected to generate 0.83 times more return on investment than BMO Dividend. However, BMO Covered Call is 1.2 times less risky than BMO Dividend. It trades about 0.25 of its potential returns per unit of risk. BMO Dividend CAD is currently generating about 0.19 per unit of risk. If you would invest 1,734 in BMO Covered Call on August 29, 2024 and sell it today you would earn a total of 276.00 from holding BMO Covered Call or generate 15.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Covered Call vs. BMO Dividend CAD
Performance |
| Timeline |
| BMO Covered Call |
| BMO Dividend CAD |
BMO Covered and BMO Dividend Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Covered and BMO Dividend
The main advantage of trading using opposite BMO Covered and BMO Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered position performs unexpectedly, BMO Dividend 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 Dividend will offset losses from the drop in BMO Dividend's long position.| BMO Covered vs. BMO Covered Call | BMO Covered vs. BMO SPTSX Equal | BMO Covered vs. BMO Canadian High | BMO Covered vs. BMO High Dividend |
| BMO Dividend vs. BMO Short Term Bond | BMO Dividend vs. BMO Canadian Bank | BMO Dividend vs. BMO Aggregate Bond | BMO Dividend vs. BMO Balanced ETF |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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