Correlation Between BMO Equal and Harvest Healthcare

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

By analyzing existing cross correlation between BMO Equal Weight and Harvest Healthcare Leaders, you can compare the effects of market volatilities on BMO Equal and Harvest Healthcare 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 Equal with a short position of Harvest Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and Harvest Healthcare.

Diversification Opportunities for BMO Equal and Harvest Healthcare

0.94

Correlation Coefficient

BMO Equal  Harvest Healthcare

Almost no diversification

The 3 months correlation between BMO and Harvest is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and Harvest Healthcare Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harvest Healthcare and BMO Equal 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 Equal Weight are associated (or correlated) with Harvest Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harvest Healthcare has no effect on the direction of BMO Equal i.e., BMO Equal and Harvest Healthcare go up and down completely randomly.

Pair Corralation between BMO Equal and Harvest Healthcare

Assuming the 90 days trading horizon BMO Equal Weight is expected to generate 1.2 times more return on investment than Harvest Healthcare. However, BMO Equal is 1.2 times more volatile than Harvest Healthcare Leaders. It trades about -0.09 of its potential returns per unit of risk. Harvest Healthcare Leaders is currently generating about -0.14 per unit of risk. If you would invest  7,334  in BMO Equal Weight on August 31, 2024 and sell it today you would lose (309.00) from holding BMO Equal Weight or give up 4.21% of portfolio value over 90 days.

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

BMO Equal Weight  vs.  Harvest Healthcare Leaders

BMO Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

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

Harvest Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harvest Healthcare Leaders has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Harvest Healthcare 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 Equal and Harvest Healthcare

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

The idea behind BMO Equal Weight and Harvest Healthcare Leaders 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.