Correlation Between BMO High and First Trust
Can any of the company-specific risk be diversified away by investing in both BMO High and First Trust 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 High and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO High Dividend and First Trust Value, you can compare the effects of market volatilities on BMO High and First Trust 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 High with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and First Trust.
Diversification Opportunities for BMO High and First Trust
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Dividend and First Trust Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Value and BMO High 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 High Dividend are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Value has no effect on the direction of BMO High i.e., BMO High and First Trust go up and down completely randomly.
Pair Corralation between BMO High and First Trust
Assuming the 90 days trading horizon BMO High is expected to generate 1.04 times less return on investment than First Trust. But when comparing it to its historical volatility, BMO High Dividend is 1.16 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Value is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,942 in First Trust Value on August 29, 2024 and sell it today you would earn a total of 825.00 from holding First Trust Value or generate 28.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO High Dividend vs. First Trust Value
Performance |
| Timeline |
| BMO High Dividend |
| First Trust Value |
BMO High and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO High and First Trust
The main advantage of trading using opposite BMO High and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO High position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| BMO High vs. BMO Europe High | BMO High vs. BMO Covered Call | BMO High vs. BMO Europe High | BMO High vs. Forstrong Global Income |
| First Trust vs. First Trust Global | First Trust vs. FT AlphaDEX Industrials | First Trust vs. First Trust Senior | First Trust vs. First Trust AlphaDEX |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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