Correlation Between BMO Covered and IShares Dividend
Can any of the company-specific risk be diversified away by investing in both BMO Covered and IShares 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 IShares 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 iShares Dividend Growers, you can compare the effects of market volatilities on BMO Covered and IShares 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 IShares Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and IShares Dividend.
Diversification Opportunities for BMO Covered and IShares Dividend
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and iShares Dividend Growers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Dividend Growers 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 IShares Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Dividend Growers has no effect on the direction of BMO Covered i.e., BMO Covered and IShares Dividend go up and down completely randomly.
Pair Corralation between BMO Covered and IShares Dividend
Assuming the 90 days trading horizon BMO Covered is expected to generate 7.36 times less return on investment than IShares Dividend. But when comparing it to its historical volatility, BMO Covered Call is 1.01 times less risky than IShares Dividend. It trades about 0.02 of its potential returns per unit of risk. iShares Dividend Growers is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 5,557 in iShares Dividend Growers on August 26, 2024 and sell it today you would earn a total of 86.00 from holding iShares Dividend Growers or generate 1.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Covered Call vs. iShares Dividend Growers
Performance |
| Timeline |
| BMO Covered Call |
| iShares Dividend Growers |
BMO Covered and IShares Dividend Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Covered and IShares Dividend
The main advantage of trading using opposite BMO Covered and IShares Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered position performs unexpectedly, IShares 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 IShares Dividend will offset losses from the drop in IShares Dividend's long position.The idea behind BMO Covered Call and iShares Dividend Growers pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| IShares Dividend vs. BMO Europe High | IShares Dividend vs. BMO Covered Call | IShares Dividend vs. BMO Covered Call | IShares Dividend vs. BMO Europe High |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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