Correlation Between European Residential and BMO Long

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

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

Diversification Opportunities for European Residential and BMO Long

0.55

Correlation Coefficient

European Residential  BMO Long

Very weak diversification

The 3 months correlation between European and BMO is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and BMO Long Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Corporate and European Residential 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 European Residential Real are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Corporate has no effect on the direction of European Residential i.e., European Residential and BMO Long go up and down completely randomly.

Pair Corralation between European Residential and BMO Long

Assuming the 90 days trading horizon European Residential Real is expected to generate 5.34 times more return on investment than BMO Long. However, European Residential is 5.34 times more volatile than BMO Long Corporate. It trades about 0.24 of its potential returns per unit of risk. BMO Long Corporate is currently generating about 0.25 per unit of risk. If you would invest  312.00  in European Residential Real on September 4, 2024 and sell it today you would earn a total of  62.00  from holding European Residential Real or generate 19.87% return on investment over 90 days.

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

European Residential Real  vs.  BMO Long Corporate

European Residential Real

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

BMO Long Corporate

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Corporate are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Long is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with European Residential and BMO Long

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

The idea behind European Residential Real and BMO Long Corporate 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.