Correlation Between BMO Concentrated and Global Healthcare

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

By analyzing existing cross correlation between BMO Concentrated Global and Global Healthcare Income, you can compare the effects of market volatilities on BMO Concentrated and Global Healthcare 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 Concentrated with a short position of Global Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Concentrated and Global Healthcare.

Diversification Opportunities for BMO Concentrated and Global Healthcare

0.64

Correlation Coefficient

BMO Concentrated  Global Healthcare

Poor diversification

The 3 months correlation between BMO and Global is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding BMO Concentrated Global and Global Healthcare Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Healthcare Income and BMO Concentrated 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 Concentrated Global are associated (or correlated) with Global Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Healthcare Income has no effect on the direction of BMO Concentrated i.e., BMO Concentrated and Global Healthcare go up and down completely randomly.

Pair Corralation between BMO Concentrated and Global Healthcare

Assuming the 90 days trading horizon BMO Concentrated Global is expected to under-perform the Global Healthcare. But the fund apears to be less risky and, when comparing its historical volatility, BMO Concentrated Global is 1.16 times less risky than Global Healthcare. The fund trades about -0.02 of its potential returns per unit of risk. The Global Healthcare Income is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  809.00  in Global Healthcare Income on December 1, 2024 and sell it today you would lose (6.00) from holding Global Healthcare Income or give up 0.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.08%
Values	Daily Returns

BMO Concentrated Global  vs.  Global Healthcare Income

BMO Concentrated Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Concentrated Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound fundamental indicators, BMO Concentrated is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Global Healthcare Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Healthcare Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Global Healthcare is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Concentrated and Global Healthcare

The main advantage of trading using opposite BMO Concentrated and Global Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Concentrated position performs unexpectedly, Global Healthcare 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 Global Healthcare will offset losses from the drop in Global Healthcare's long position.

The idea behind BMO Concentrated Global and Global Healthcare Income 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..