Correlation Between BMO Global and BMO Covered

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

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

Diversification Opportunities for BMO Global and BMO Covered

0.9

Correlation Coefficient

BMO Global  BMO Covered

Almost no diversification

The 3 months correlation between BMO and BMO is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BMO Global Consumer and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call and BMO Global 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 Global Consumer are associated (or correlated) with BMO Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BMO Global i.e., BMO Global and BMO Covered go up and down completely randomly.

Pair Corralation between BMO Global and BMO Covered

Assuming the 90 days trading horizon BMO Global is expected to generate 1.17 times less return on investment than BMO Covered. In addition to that, BMO Global is 1.36 times more volatile than BMO Covered Call. It trades about 0.13 of its total potential returns per unit of risk. BMO Covered Call is currently generating about 0.2 per unit of volatility. If you would invest  1,035  in BMO Covered Call on December 20, 2024 and sell it today you would earn a total of  74.00  from holding BMO Covered Call or generate 7.15% return on investment over 90 days.

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

BMO Global Consumer  vs.  BMO Covered Call

BMO Global Consumer

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Consumer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Global may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BMO Covered Call

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Covered may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BMO Global and BMO Covered

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

The idea behind BMO Global Consumer and BMO Covered Call 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.