Correlation Between Visa and BMO Premium

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

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

Diversification Opportunities for Visa and BMO Premium

0.77

Correlation Coefficient

Visa  BMO Premium

Poor diversification

The 3 months correlation between Visa and BMO is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and BMO Premium go up and down completely randomly.

Pair Corralation between Visa and BMO Premium

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.23 times more return on investment than BMO Premium. However, Visa is 2.23 times more volatile than BMO Premium Yield. It trades about 0.34 of its potential returns per unit of risk. BMO Premium Yield is currently generating about 0.13 per unit of risk. If you would invest  29,018  in Visa Class A on September 2, 2024 and sell it today you would earn a total of  2,490  from holding Visa Class A or generate 8.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  BMO Premium Yield

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

BMO Premium Yield

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Premium Yield are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Premium is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Visa and BMO Premium

The main advantage of trading using opposite Visa and BMO Premium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.