Correlation Between BMO Equal and BMO Global

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

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

Diversification Opportunities for BMO Equal and BMO Global

0.86

Correlation Coefficient

BMO Equal  BMO Global

Very poor diversification

The 3 months correlation between BMO and BMO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and BMO Global Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Consumer and BMO Equal 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 Equal Weight are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Consumer has no effect on the direction of BMO Equal i.e., BMO Equal and BMO Global go up and down completely randomly.

Pair Corralation between BMO Equal and BMO Global

Assuming the 90 days trading horizon BMO Equal Weight is expected to under-perform the BMO Global. In addition to that, BMO Equal is 1.53 times more volatile than BMO Global Consumer. It trades about -0.16 of its total potential returns per unit of risk. BMO Global Consumer is currently generating about -0.15 per unit of volatility. If you would invest  2,499  in BMO Global Consumer on September 15, 2024 and sell it today you would lose (121.00) from holding BMO Global Consumer or give up 4.84% of portfolio value over 90 days.

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

BMO Equal Weight  vs.  BMO Global Consumer

BMO Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

BMO Global Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Global Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Global 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 Equal and BMO Global

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

The idea behind BMO Equal Weight and BMO Global Consumer 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.