Correlation Between BMO Ultra and BMO Short

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

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

Diversification Opportunities for BMO Ultra and BMO Short

0.38

Correlation Coefficient

BMO Ultra  BMO Short

Weak diversification

The 3 months correlation between BMO and BMO is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding BMO Ultra Short Term and BMO Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term and BMO Ultra 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 Ultra Short Term are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Term has no effect on the direction of BMO Ultra i.e., BMO Ultra and BMO Short go up and down completely randomly.

Pair Corralation between BMO Ultra and BMO Short

Assuming the 90 days trading horizon BMO Ultra is expected to generate 1.21 times less return on investment than BMO Short. But when comparing it to its historical volatility, BMO Ultra Short Term is 5.11 times less risky than BMO Short. It trades about 0.65 of its potential returns per unit of risk. BMO Short Term Bond is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,575  in BMO Short Term Bond on September 4, 2024 and sell it today you would earn a total of  292.00  from holding BMO Short Term Bond or generate 6.38% return on investment over 90 days.

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

BMO Ultra Short Term  vs.  BMO Short Term Bond

BMO Ultra Short

Risk-Adjusted Performance

47 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Ultra Short Term are ranked lower than 47 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Ultra is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Short Term

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Term Bond are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Short 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 Ultra and BMO Short

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

The idea behind BMO Ultra Short Term and BMO Short Term Bond 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.