Correlation Between Visa and BMO Government
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
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Visa and BMO is 0.6. 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 2.17 times more return on investment than BMO Government. However, Visa is 2.17 times more volatile than BMO Government Bond. It trades about 0.1 of its potential returns per unit of risk. BMO Government Bond is currently generating about 0.04 per unit of risk. If you would invest 21,979 in Visa Class A on November 26, 2024 and sell it today you would earn a total of 13,007 from holding Visa Class A or generate 59.18% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.8% |
Values | Daily Returns |
Visa Class A vs. BMO Government Bond
Performance |
Timeline |
Visa Class A |
BMO Government Bond |
Visa and BMO Government Volatility Contrast
Predicted Return Density |
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.Visa vs. American Express | ||
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Check out your portfolio center.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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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