Correlation Between BMO Short and BMO Corporate

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

By analyzing existing cross correlation between BMO Short Term IG and BMO Corporate Bond, you can compare the effects of market volatilities on BMO Short and BMO Corporate 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 Corporate. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Corporate.

Diversification Opportunities for BMO Short and BMO Corporate

0.21

Correlation Coefficient

BMO Short  BMO Corporate

Modest diversification

The 3 months correlation between BMO and BMO is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Term IG and BMO Corporate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Corporate Bond 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 Term IG are associated (or correlated) with BMO Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Corporate Bond has no effect on the direction of BMO Short i.e., BMO Short and BMO Corporate go up and down completely randomly.

Pair Corralation between BMO Short and BMO Corporate

Assuming the 90 days trading horizon BMO Short Term IG is expected to generate 0.63 times more return on investment than BMO Corporate. However, BMO Short Term IG is 1.59 times less risky than BMO Corporate. It trades about -0.18 of its potential returns per unit of risk. BMO Corporate Bond is currently generating about -0.14 per unit of risk. If you would invest  1,337  in BMO Short Term IG on October 9, 2024 and sell it today you would lose (7.00) from holding BMO Short Term IG or give up 0.52% of portfolio value over 90 days.

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

BMO Short Term IG  vs.  BMO Corporate Bond

BMO Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Short Term IG has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Corporate Bond

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Corporate Bond are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Corporate 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 Corporate

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

The idea behind BMO Short Term IG and BMO Corporate Bond 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.