Correlation Between Harvest Equal and BMO Premium

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

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

Diversification Opportunities for Harvest Equal and BMO Premium

0.7

Correlation Coefficient

Harvest Equal  BMO Premium

Poor diversification

The 3 months correlation between Harvest and BMO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Harvest Equal Weight and BMO Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Premium Yield and Harvest 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 Harvest Equal Weight are associated (or correlated) with BMO Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Premium Yield has no effect on the direction of Harvest Equal i.e., Harvest Equal and BMO Premium go up and down completely randomly.

Pair Corralation between Harvest Equal and BMO Premium

Assuming the 90 days trading horizon Harvest Equal Weight is expected to generate 1.45 times more return on investment than BMO Premium. However, Harvest Equal is 1.45 times more volatile than BMO Premium Yield. It trades about 0.15 of its potential returns per unit of risk. BMO Premium Yield is currently generating about 0.16 per unit of risk. If you would invest  1,756  in Harvest Equal Weight on September 9, 2024 and sell it today you would earn a total of  39.00  from holding Harvest Equal Weight or generate 2.22% return on investment over 90 days.

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

Harvest Equal Weight  vs.  BMO Premium Yield

Harvest Equal Weight

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harvest Equal Weight are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Harvest Equal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Premium Yield

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Premium Yield are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Premium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Harvest Equal and BMO Premium

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

The idea behind Harvest Equal Weight and BMO Premium Yield 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .