Correlation Between BMO Core and Dynamic Active

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

By analyzing existing cross correlation between BMO Core Plus and Dynamic Active Tactical, you can compare the effects of market volatilities on BMO Core and Dynamic Active 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 BMO Core with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Core and Dynamic Active.

Diversification Opportunities for BMO Core and Dynamic Active

0.83

Correlation Coefficient

BMO Core  Dynamic Active

Very poor diversification

The 3 months correlation between BMO and Dynamic is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO Core Plus and Dynamic Active Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Tactical and BMO Core 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 BMO Core Plus are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Tactical has no effect on the direction of BMO Core i.e., BMO Core and Dynamic Active go up and down completely randomly.

Pair Corralation between BMO Core and Dynamic Active

Assuming the 90 days trading horizon BMO Core Plus is expected to generate 0.97 times more return on investment than Dynamic Active. However, BMO Core Plus is 1.03 times less risky than Dynamic Active. It trades about 0.16 of its potential returns per unit of risk. Dynamic Active Tactical is currently generating about 0.1 per unit of risk. If you would invest  2,778  in BMO Core Plus on September 23, 2024 and sell it today you would earn a total of  42.00  from holding BMO Core Plus or generate 1.51% return on investment over 90 days.

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

BMO Core Plus  vs.  Dynamic Active Tactical

BMO Core Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dynamic Active Tactical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dynamic Active Tactical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Dynamic Active is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Core and Dynamic Active

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

The idea behind BMO Core Plus and Dynamic Active Tactical 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.