Correlation Between BMO Premium and BMO Covered

Can any of the company-specific risk be diversified away by investing in both BMO Premium and BMO Covered 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 Covered 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 Covered Call, you can compare the effects of market volatilities on BMO Premium and BMO Covered 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 Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Premium and BMO Covered.

Diversification Opportunities for BMO Premium and BMO Covered

0.92

Correlation Coefficient

BMO Premium  BMO Covered

Almost no diversification

The 3 months correlation between BMO and BMO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding BMO Premium Yield and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BMO Premium i.e., BMO Premium and BMO Covered go up and down completely randomly.

Pair Corralation between BMO Premium and BMO Covered

Assuming the 90 days trading horizon BMO Premium is expected to generate 3.35 times less return on investment than BMO Covered. But when comparing it to its historical volatility, BMO Premium Yield is 3.48 times less risky than BMO Covered. It trades about 0.22 of its potential returns per unit of risk. BMO Covered Call is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,188  in BMO Covered Call on September 2, 2024 and sell it today you would earn a total of  463.00  from holding BMO Covered Call or generate 21.16% return on investment over 90 days.

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

BMO Premium Yield  vs.  BMO Covered Call

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.

BMO Covered Call

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward-looking signals, BMO Covered displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Premium and BMO Covered

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

The idea behind BMO Premium Yield and BMO Covered Call 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.