Correlation Between Tech Leaders and BMO Premium

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

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

Diversification Opportunities for Tech Leaders and BMO Premium

0.61

Correlation Coefficient

Tech Leaders  BMO Premium

Poor diversification

The 3 months correlation between Tech and BMO is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tech Leaders Income and BMO Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Premium Yield and Tech Leaders 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 Tech Leaders Income are associated (or correlated) with BMO Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Premium Yield has no effect on the direction of Tech Leaders i.e., Tech Leaders and BMO Premium go up and down completely randomly.

Pair Corralation between Tech Leaders and BMO Premium

Assuming the 90 days trading horizon Tech Leaders Income is expected to under-perform the BMO Premium. In addition to that, Tech Leaders is 2.64 times more volatile than BMO Premium Yield. It trades about -0.12 of its total potential returns per unit of risk. BMO Premium Yield is currently generating about -0.05 per unit of volatility. If you would invest  3,264  in BMO Premium Yield on December 28, 2024 and sell it today you would lose (64.00) from holding BMO Premium Yield or give up 1.96% of portfolio value over 90 days.

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

Tech Leaders Income  vs.  BMO Premium Yield

Tech Leaders Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tech Leaders Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

BMO Premium Yield

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tech Leaders and BMO Premium

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

The idea behind Tech Leaders Income and BMO Premium Yield 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.