Correlation Between Visa and BMO Europe

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

Diversification Opportunities for Visa and BMO Europe

0.85

Correlation Coefficient

Visa  BMO Europe

Very poor diversification

The 3 months correlation between Visa and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BMO Europe High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Europe High 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 Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Europe High has no effect on the direction of Visa i.e., Visa and BMO Europe go up and down completely randomly.

Pair Corralation between Visa and BMO Europe

Taking into account the 90-day investment horizon Visa is expected to generate 1.1 times less return on investment than BMO Europe. In addition to that, Visa is 1.54 times more volatile than BMO Europe High. It trades about 0.11 of its total potential returns per unit of risk. BMO Europe High is currently generating about 0.19 per unit of volatility. If you would invest  1,968  in BMO Europe High on December 26, 2024 and sell it today you would earn a total of  166.00  from holding BMO Europe High or generate 8.43% return on investment over 90 days.

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

Visa Class A  vs.  BMO Europe High

Visa Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) 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 April 2025.

BMO Europe High

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Europe High are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, BMO Europe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Visa and BMO Europe

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

The idea behind Visa Class A and BMO Europe 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.