Correlation Between Purpose Enhanced and BMO Put

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

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

Diversification Opportunities for Purpose Enhanced and BMO Put

0.53

Correlation Coefficient

Purpose Enhanced  BMO Put

Very weak diversification

The 3 months correlation between Purpose and BMO is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Purpose Enhanced Premium and BMO Put Write in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Put Write and Purpose Enhanced 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 Purpose Enhanced Premium are associated (or correlated) with BMO Put. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Put Write has no effect on the direction of Purpose Enhanced i.e., Purpose Enhanced and BMO Put go up and down completely randomly.

Pair Corralation between Purpose Enhanced and BMO Put

Assuming the 90 days trading horizon Purpose Enhanced Premium is expected to generate 1.32 times more return on investment than BMO Put. However, Purpose Enhanced is 1.32 times more volatile than BMO Put Write. It trades about -0.04 of its potential returns per unit of risk. BMO Put Write is currently generating about -0.35 per unit of risk. If you would invest  1,919  in Purpose Enhanced Premium on December 1, 2024 and sell it today you would lose (6.00) from holding Purpose Enhanced Premium or give up 0.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Purpose Enhanced Premium  vs.  BMO Put Write

Purpose Enhanced Premium

Risk-Adjusted Performance

Very Weak

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

BMO Put Write

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Purpose Enhanced and BMO Put

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

The idea behind Purpose Enhanced Premium and BMO Put Write 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.