Correlation Between Brompton European and BMO Clean

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

By analyzing existing cross correlation between Brompton European Dividend and BMO Clean Energy, you can compare the effects of market volatilities on Brompton European and BMO Clean 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 Brompton European with a short position of BMO Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and BMO Clean.

Diversification Opportunities for Brompton European and BMO Clean

-0.16

Correlation Coefficient

Brompton European  BMO Clean

Good diversification

The 3 months correlation between Brompton and BMO is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and BMO Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Clean Energy and Brompton European 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 Brompton European Dividend are associated (or correlated) with BMO Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Clean Energy has no effect on the direction of Brompton European i.e., Brompton European and BMO Clean go up and down completely randomly.

Pair Corralation between Brompton European and BMO Clean

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 0.94 times more return on investment than BMO Clean. However, Brompton European Dividend is 1.06 times less risky than BMO Clean. It trades about 0.11 of its potential returns per unit of risk. BMO Clean Energy is currently generating about 0.0 per unit of risk. If you would invest  1,031  in Brompton European Dividend on December 29, 2024 and sell it today you would earn a total of  74.00  from holding Brompton European Dividend or generate 7.18% return on investment over 90 days.

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

Brompton European Dividend  vs.  BMO Clean Energy

Brompton European

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BMO Clean Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Brompton European and BMO Clean

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

The idea behind Brompton European Dividend and BMO Clean Energy 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.