Correlation Between BMO Floating and First Trust

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

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

Diversification Opportunities for BMO Floating and First Trust

0.88

Correlation Coefficient

BMO Floating  First Trust

Very poor diversification

The 3 months correlation between BMO and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BMO Floating Rate and First Trust Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Senior and BMO Floating 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 Floating Rate are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Senior has no effect on the direction of BMO Floating i.e., BMO Floating and First Trust go up and down completely randomly.

Pair Corralation between BMO Floating and First Trust

Assuming the 90 days trading horizon BMO Floating Rate is expected to generate 0.26 times more return on investment than First Trust. However, BMO Floating Rate is 3.8 times less risky than First Trust. It trades about 0.42 of its potential returns per unit of risk. First Trust Senior is currently generating about 0.06 per unit of risk. If you would invest  1,475  in BMO Floating Rate on September 5, 2024 and sell it today you would earn a total of  35.00  from holding BMO Floating Rate or generate 2.37% return on investment over 90 days.

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

BMO Floating Rate  vs.  First Trust Senior

BMO Floating Rate

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Floating Rate are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, BMO Floating is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Senior

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Floating and First Trust

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

The idea behind BMO Floating Rate and First Trust Senior 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.