Correlation Between BMO Europe and BMO Tactical
Can any of the company-specific risk be diversified away by investing in both BMO Europe and BMO Tactical 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 Europe and BMO Tactical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Europe High and BMO Tactical Dividend, you can compare the effects of market volatilities on BMO Europe and BMO Tactical 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 Europe with a short position of BMO Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Europe and BMO Tactical.
Diversification Opportunities for BMO Europe and BMO Tactical
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BMO Europe High and BMO Tactical Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Tactical Dividend and BMO Europe 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 Europe High are associated (or correlated) with BMO Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Tactical Dividend has no effect on the direction of BMO Europe i.e., BMO Europe and BMO Tactical go up and down completely randomly.
Pair Corralation between BMO Europe and BMO Tactical
Assuming the 90 days trading horizon BMO Europe High is expected to generate 1.22 times more return on investment than BMO Tactical. However, BMO Europe is 1.22 times more volatile than BMO Tactical Dividend. It trades about 0.06 of its potential returns per unit of risk. BMO Tactical Dividend is currently generating about 0.05 per unit of risk. If you would invest 1,435 in BMO Europe High on September 3, 2024 and sell it today you would earn a total of 332.00 from holding BMO Europe High or generate 23.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Europe High vs. BMO Tactical Dividend
Performance |
| Timeline |
| BMO Europe High |
| BMO Tactical Dividend |
BMO Europe and BMO Tactical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Europe and BMO Tactical
The main advantage of trading using opposite BMO Europe and BMO Tactical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Europe position performs unexpectedly, BMO Tactical 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 Tactical will offset losses from the drop in BMO Tactical's long position.| BMO Europe vs. BMO Europe High | BMO Europe vs. BMO High Dividend | BMO Europe vs. BMO Covered Call | BMO Europe vs. BMO Global High |
| BMO Tactical vs. BMO Premium Yield | BMO Tactical vs. BMO Europe High | BMO Tactical vs. BMO Europe High | BMO Tactical vs. BMO SPTSX Equal |
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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