Correlation Between BMO Europe and Dynamic Active

Can any of the company-specific risk be diversified away by investing in both BMO Europe 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 Europe 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 Europe High and Dynamic Active Global, you can compare the effects of market volatilities on BMO Europe 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 Europe with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Europe and Dynamic Active.

Diversification Opportunities for BMO Europe and Dynamic Active

-0.35

Correlation Coefficient

BMO Europe  Dynamic Active

Very good diversification

The 3 months correlation between BMO and Dynamic is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding BMO Europe High and Dynamic Active Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Global and BMO Europe 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 Europe High 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 Global has no effect on the direction of BMO Europe i.e., BMO Europe and Dynamic Active go up and down completely randomly.

Pair Corralation between BMO Europe and Dynamic Active

Assuming the 90 days trading horizon BMO Europe High is expected to generate 0.78 times more return on investment than Dynamic Active. However, BMO Europe High is 1.28 times less risky than Dynamic Active. It trades about -0.11 of its potential returns per unit of risk. Dynamic Active Global is currently generating about -0.12 per unit of risk. If you would invest  2,013  in BMO Europe High on October 5, 2024 and sell it today you would lose (24.00) from holding BMO Europe High or give up 1.19% of portfolio value over 90 days.

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

BMO Europe High  vs.  Dynamic Active Global

BMO Europe High

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dynamic Active Global

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Global are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Dynamic Active may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BMO Europe and Dynamic Active

The main advantage of trading using opposite BMO Europe and Dynamic Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Europe 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 Europe High and Dynamic Active Global 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.