Correlation Between BMO Short and BMO Real

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

By analyzing existing cross correlation between BMO Short Corporate and BMO Real Return, you can compare the effects of market volatilities on BMO Short and BMO Real 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 Short with a short position of BMO Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Real.

Diversification Opportunities for BMO Short and BMO Real

0.23

Correlation Coefficient

BMO Short  BMO Real

Modest diversification

The 3 months correlation between BMO and BMO is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and BMO Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Real Return and BMO Short 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 Short Corporate are associated (or correlated) with BMO Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Real Return has no effect on the direction of BMO Short i.e., BMO Short and BMO Real go up and down completely randomly.

Pair Corralation between BMO Short and BMO Real

Assuming the 90 days trading horizon BMO Short Corporate is expected to generate 0.3 times more return on investment than BMO Real. However, BMO Short Corporate is 3.36 times less risky than BMO Real. It trades about 0.19 of its potential returns per unit of risk. BMO Real Return is currently generating about 0.05 per unit of risk. If you would invest  1,362  in BMO Short Corporate on September 3, 2024 and sell it today you would earn a total of  25.00  from holding BMO Short Corporate or generate 1.84% return on investment over 90 days.

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

BMO Short Corporate  vs.  BMO Real Return

BMO Short Corporate

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Corporate are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Real Return

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Real Return are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Real 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 Short and BMO Real

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

The idea behind BMO Short Corporate and BMO Real Return 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.