Correlation Between BMO Premium and BMO Put

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

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

Diversification Opportunities for BMO Premium and BMO Put

0.59

Correlation Coefficient

BMO Premium  BMO Put

Very weak diversification

The 3 months correlation between BMO and BMO is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BMO Premium Yield and BMO Put Write in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Put Write and BMO Premium 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 Premium Yield are associated (or correlated) with BMO Put. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Put Write has no effect on the direction of BMO Premium i.e., BMO Premium and BMO Put go up and down completely randomly.

Pair Corralation between BMO Premium and BMO Put

Assuming the 90 days trading horizon BMO Premium Yield is expected to generate 0.97 times more return on investment than BMO Put. However, BMO Premium Yield is 1.03 times less risky than BMO Put. It trades about 0.26 of its potential returns per unit of risk. BMO Put Write is currently generating about 0.12 per unit of risk. If you would invest  3,109  in BMO Premium Yield on September 12, 2024 and sell it today you would earn a total of  212.00  from holding BMO Premium Yield or generate 6.82% return on investment over 90 days.

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

BMO Premium Yield  vs.  BMO Put Write

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.

BMO Put Write

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Put Write are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, BMO Put 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 Premium and BMO Put

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

The idea behind BMO Premium Yield and BMO Put Write 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.