Correlation Between BMO Covered and BMO Equal
Can any of the company-specific risk be diversified away by investing in both BMO Covered and BMO Equal 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 Equal 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 Equal Weight, you can compare the effects of market volatilities on BMO Covered and BMO Equal 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 Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and BMO Equal.
Diversification Opportunities for BMO Covered and BMO Equal
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between BMO and BMO is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of BMO Covered i.e., BMO Covered and BMO Equal go up and down completely randomly.
Pair Corralation between BMO Covered and BMO Equal
Assuming the 90 days trading horizon BMO Covered is expected to generate 2.83 times less return on investment than BMO Equal. But when comparing it to its historical volatility, BMO Covered Call is 1.67 times less risky than BMO Equal. It trades about 0.03 of its potential returns per unit of risk. BMO Equal Weight is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,767 in BMO Equal Weight on August 28, 2024 and sell it today you would earn a total of 1,984 from holding BMO Equal Weight or generate 34.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Covered Call vs. BMO Equal Weight
Performance |
| Timeline |
| BMO Covered Call |
| BMO Equal Weight |
BMO Covered and BMO Equal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Covered and BMO Equal
The main advantage of trading using opposite BMO Covered and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered position performs unexpectedly, BMO Equal 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 Equal will offset losses from the drop in BMO Equal's long position.| BMO Covered vs. BMO Covered Call | BMO Covered vs. BMO Canadian High | BMO Covered vs. BMO Europe High | BMO Covered vs. Harvest Healthcare Leaders |
| BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. iShares SPTSX Global | BMO Equal vs. iShares SPTSX 60 | BMO Equal vs. iShares SPTSX Capped |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
Other Complementary Tools
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Transaction History View history of all your transactions and understand their impact on performance |