Correlation Between PHN Multi and BMO Equal

Can any of the company-specific risk be diversified away by investing in both PHN Multi 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 PHN Multi and BMO Equal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PHN Multi Style All Cap and BMO Equal Weight, you can compare the effects of market volatilities on PHN Multi 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 PHN Multi with a short position of BMO Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of PHN Multi and BMO Equal.

Diversification Opportunities for PHN Multi and BMO Equal

0.82

Correlation Coefficient

PHN Multi  BMO Equal

Very poor diversification

The 3 months correlation between PHN and BMO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding PHN Multi Style All Cap 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 PHN Multi 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 PHN Multi Style All Cap 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 PHN Multi i.e., PHN Multi and BMO Equal go up and down completely randomly.

Pair Corralation between PHN Multi and BMO Equal

Assuming the 90 days trading horizon PHN Multi Style All Cap is expected to under-perform the BMO Equal. In addition to that, PHN Multi is 1.14 times more volatile than BMO Equal Weight. It trades about -0.07 of its total potential returns per unit of risk. BMO Equal Weight is currently generating about -0.05 per unit of volatility. If you would invest  6,586  in BMO Equal Weight on December 30, 2024 and sell it today you would lose (174.00) from holding BMO Equal Weight or give up 2.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

PHN Multi Style All Cap  vs.  BMO Equal Weight

PHN Multi Style

Risk-Adjusted Performance

Very Weak

Over the last 90 days PHN Multi Style All Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy basic indicators, PHN Multi is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Equal Weight

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, BMO Equal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PHN Multi and BMO Equal

The main advantage of trading using opposite PHN Multi and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PHN Multi 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.

The idea behind PHN Multi Style All Cap and BMO Equal Weight 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.