Correlation Between BMO Canadian and BMO Covered
Can any of the company-specific risk be diversified away by investing in both BMO Canadian 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 Canadian 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 Canadian High and BMO Covered Call, you can compare the effects of market volatilities on BMO Canadian 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 Canadian with a short position of BMO Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and BMO Covered.
Diversification Opportunities for BMO Canadian and BMO Covered
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian High 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 Canadian 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 Canadian High 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 Canadian i.e., BMO Canadian and BMO Covered go up and down completely randomly.
Pair Corralation between BMO Canadian and BMO Covered
Assuming the 90 days trading horizon BMO Canadian is expected to generate 9.15 times less return on investment than BMO Covered. But when comparing it to its historical volatility, BMO Canadian High is 4.29 times less risky than BMO Covered. It trades about 0.12 of its potential returns per unit of risk. BMO Covered Call is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2,379 in BMO Covered Call on August 29, 2024 and sell it today you would earn a total of 269.00 from holding BMO Covered Call or generate 11.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Canadian High vs. BMO Covered Call
Performance |
| Timeline |
| BMO Canadian High |
| BMO Covered Call |
BMO Canadian and BMO Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Canadian and BMO Covered
The main advantage of trading using opposite BMO Canadian and BMO Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Canadian 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 Canadian vs. iShares Diversified Monthly | BMO Canadian vs. iShares SPTSX Capped | BMO Canadian vs. iShares SPTSX Capped |
| BMO Covered vs. Brompton Global Dividend | BMO Covered vs. Tech Leaders Income | BMO Covered vs. Global Healthcare Income | BMO Covered vs. Brompton European Dividend |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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