Correlation Between BMO Discount and BMO Mid

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Can any of the company-specific risk be diversified away by investing in both BMO Discount and BMO Mid 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 Discount and BMO Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Discount Bond and BMO Mid Federal, you can compare the effects of market volatilities on BMO Discount and BMO Mid 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 Discount with a short position of BMO Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Discount and BMO Mid.

Diversification Opportunities for BMO Discount and BMO Mid

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between BMO and BMO is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BMO Discount Bond and BMO Mid Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Federal and BMO Discount 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 Discount Bond are associated (or correlated) with BMO Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Mid Federal has no effect on the direction of BMO Discount i.e., BMO Discount and BMO Mid go up and down completely randomly.

Pair Corralation between BMO Discount and BMO Mid

Assuming the 90 days trading horizon BMO Discount Bond is expected to generate 0.91 times more return on investment than BMO Mid. However, BMO Discount Bond is 1.1 times less risky than BMO Mid. It trades about 0.05 of its potential returns per unit of risk. BMO Mid Federal is currently generating about 0.04 per unit of risk. If you would invest  1,367  in BMO Discount Bond on September 16, 2024 and sell it today you would earn a total of  150.00  from holding BMO Discount Bond or generate 10.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

BMO Discount Bond  vs.  BMO Mid Federal

 Performance 
       Timeline  
BMO Discount Bond 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BMO Discount Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, BMO Discount is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
BMO Mid Federal 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BMO Mid Federal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, BMO Mid is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Discount and BMO Mid Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BMO Discount and BMO Mid

The main advantage of trading using opposite BMO Discount and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Discount position performs unexpectedly, BMO Mid 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 Mid will offset losses from the drop in BMO Mid's long position.
The idea behind BMO Discount Bond and BMO Mid Federal 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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