Correlation Between Microsoft and BMO Balanced

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

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

Diversification Opportunities for Microsoft and BMO Balanced

0.46

Correlation Coefficient

Microsoft  BMO Balanced

Very weak diversification

The 3 months correlation between Microsoft and BMO is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BMO Balanced ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Balanced ESG and Microsoft 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 Microsoft are associated (or correlated) with BMO Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Balanced ESG has no effect on the direction of Microsoft i.e., Microsoft and BMO Balanced go up and down completely randomly.

Pair Corralation between Microsoft and BMO Balanced

Given the investment horizon of 90 days Microsoft is expected to generate 1.51 times less return on investment than BMO Balanced. In addition to that, Microsoft is 3.24 times more volatile than BMO Balanced ESG. It trades about 0.04 of its total potential returns per unit of risk. BMO Balanced ESG is currently generating about 0.21 per unit of volatility. If you would invest  3,693  in BMO Balanced ESG on September 17, 2024 and sell it today you would earn a total of  196.00  from holding BMO Balanced ESG or generate 5.31% return on investment over 90 days.

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

Microsoft  vs.  BMO Balanced ESG

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

BMO Balanced ESG

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ESG are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and BMO Balanced

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

The idea behind Microsoft and BMO Balanced ESG 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 CEOs Directory module to screen CEOs from public companies around the world.