Correlation Between Visa and BMO Long

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

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

Diversification Opportunities for Visa and BMO Long

0.3

Correlation Coefficient

Visa  BMO Long

Weak diversification

The 3 months correlation between Visa and BMO is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BMO Long Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Federal and Visa 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 Visa Class A are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Federal has no effect on the direction of Visa i.e., Visa and BMO Long go up and down completely randomly.

Pair Corralation between Visa and BMO Long

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.01 times more return on investment than BMO Long. However, Visa is 1.01 times more volatile than BMO Long Federal. It trades about 0.21 of its potential returns per unit of risk. BMO Long Federal is currently generating about 0.0 per unit of risk. If you would invest  31,455  in Visa Class A on November 29, 2024 and sell it today you would earn a total of  3,608  from holding Visa Class A or generate 11.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Visa Class A  vs.  BMO Long Federal

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in March 2025.

BMO Long Federal

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Visa and BMO Long

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

The idea behind Visa Class A and BMO Long Federal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.