Correlation Between Visa and BMO Government

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

Diversification Opportunities for Visa and BMO Government

VisaBMODiversified AwayVisaBMODiversified Away100%
0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Visa and BMO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BMO Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Government Bond 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 Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Government Bond has no effect on the direction of Visa i.e., Visa and BMO Government go up and down completely randomly.

Pair Corralation between Visa and BMO Government

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.89 times more return on investment than BMO Government. However, Visa is 1.89 times more volatile than BMO Government Bond. It trades about 0.26 of its potential returns per unit of risk. BMO Government Bond is currently generating about 0.1 per unit of risk. If you would invest  33,398  in Visa Class A on November 27, 2024 and sell it today you would earn a total of  1,455  from holding Visa Class A or generate 4.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Visa Class A  vs.  BMO Government Bond

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 051015
JavaScript chart by amCharts 3.21.15V ZGB
       Timeline  
Visa Class A 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb310320330340350
BMO Government Bond 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in BMO Government Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Government is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb45.54646.547

Visa and BMO Government Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.72-2.04-1.35-0.670.00.751.52.263.02 0.51.01.52.02.5
JavaScript chart by amCharts 3.21.15V ZGB
       Returns  

Pair Trading with Visa and BMO Government

The main advantage of trading using opposite Visa and BMO Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, BMO Government 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 Government will offset losses from the drop in BMO Government's long position.
The idea behind Visa Class A and BMO Government Bond 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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