Correlation Between BMO Government and Invesco 1

Can any of the company-specific risk be diversified away by investing in both BMO Government and Invesco 1 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 Government and Invesco 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Government Bond and Invesco 1 5 Year, you can compare the effects of market volatilities on BMO Government and Invesco 1 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 Government with a short position of Invesco 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Government and Invesco 1.

Diversification Opportunities for BMO Government and Invesco 1

0.83

Correlation Coefficient

BMO Government  Invesco 1

Very poor diversification

The 3 months correlation between BMO and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO Government Bond and Invesco 1 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco 1 5 and BMO Government 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 Government Bond are associated (or correlated) with Invesco 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco 1 5 has no effect on the direction of BMO Government i.e., BMO Government and Invesco 1 go up and down completely randomly.

Pair Corralation between BMO Government and Invesco 1

Assuming the 90 days trading horizon BMO Government is expected to generate 1.63 times less return on investment than Invesco 1. In addition to that, BMO Government is 2.64 times more volatile than Invesco 1 5 Year. It trades about 0.05 of its total potential returns per unit of risk. Invesco 1 5 Year is currently generating about 0.22 per unit of volatility. If you would invest  1,761  in Invesco 1 5 Year on October 6, 2024 and sell it today you would earn a total of  25.00  from holding Invesco 1 5 Year or generate 1.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.62%
Values	Daily Returns

BMO Government Bond  vs.  Invesco 1 5 Year

BMO Government Bond

Risk-Adjusted Performance

5 of 100

Modest

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.

Invesco 1 5

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco 1 5 Year are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Invesco 1 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 Government and Invesco 1

The main advantage of trading using opposite BMO Government and Invesco 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Government position performs unexpectedly, Invesco 1 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 Invesco 1 will offset losses from the drop in Invesco 1's long position.

The idea behind BMO Government Bond and Invesco 1 5 Year 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.