Correlation Between Microsoft and BMO Low

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

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

Diversification Opportunities for Microsoft and BMO Low

-0.74

Correlation Coefficient

Microsoft  BMO Low

Pay attention - limited upside

The 3 months correlation between Microsoft and BMO is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BMO Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Low Volatility and Microsoft 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 Microsoft are associated (or correlated) with BMO Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Low Volatility has no effect on the direction of Microsoft i.e., Microsoft and BMO Low go up and down completely randomly.

Pair Corralation between Microsoft and BMO Low

Given the investment horizon of 90 days Microsoft is expected to under-perform the BMO Low. In addition to that, Microsoft is 3.04 times more volatile than BMO Low Volatility. It trades about -0.11 of its total potential returns per unit of risk. BMO Low Volatility is currently generating about 0.14 per unit of volatility. If you would invest  4,683  in BMO Low Volatility on December 29, 2024 and sell it today you would earn a total of  223.00  from holding BMO Low Volatility or generate 4.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Microsoft  vs.  BMO Low Volatility

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

BMO Low Volatility

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Low Volatility are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Low is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and BMO Low

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

The idea behind Microsoft and BMO Low Volatility 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.