Correlation Between Tech Leaders and BMO Global

Can any of the company-specific risk be diversified away by investing in both Tech Leaders and BMO Global 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 Global 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 Global High, you can compare the effects of market volatilities on Tech Leaders and BMO Global 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 Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tech Leaders and BMO Global.

Diversification Opportunities for Tech Leaders and BMO Global

0.53

Correlation Coefficient

Tech Leaders  BMO Global

Very weak diversification

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

Pair Corralation between Tech Leaders and BMO Global

Assuming the 90 days trading horizon Tech Leaders Income is expected to generate 2.4 times more return on investment than BMO Global. However, Tech Leaders is 2.4 times more volatile than BMO Global High. It trades about 0.07 of its potential returns per unit of risk. BMO Global High is currently generating about 0.12 per unit of risk. If you would invest  1,873  in Tech Leaders Income on November 20, 2024 and sell it today you would earn a total of  703.00  from holding Tech Leaders Income or generate 37.53% return on investment over 90 days.

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

Tech Leaders Income  vs.  BMO Global High

Tech Leaders Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Leaders Income are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Tech Leaders is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Global High

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global High are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, BMO Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tech Leaders and BMO Global

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

The idea behind Tech Leaders Income and BMO Global High 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.