Correlation Between BMO Covered and Harvest Equal

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

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

Diversification Opportunities for BMO Covered and Harvest Equal

0.47

Correlation Coefficient

BMO Covered  Harvest Equal

Very weak diversification

The 3 months correlation between BMO and Harvest is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and Harvest Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harvest Equal Weight and BMO Covered 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 Covered Call are associated (or correlated) with Harvest Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harvest Equal Weight has no effect on the direction of BMO Covered i.e., BMO Covered and Harvest Equal go up and down completely randomly.

Pair Corralation between BMO Covered and Harvest Equal

Assuming the 90 days trading horizon BMO Covered Call is expected to generate 2.4 times more return on investment than Harvest Equal. However, BMO Covered is 2.4 times more volatile than Harvest Equal Weight. It trades about 0.09 of its potential returns per unit of risk. Harvest Equal Weight is currently generating about -0.08 per unit of risk. If you would invest  2,366  in BMO Covered Call on September 27, 2024 and sell it today you would earn a total of  142.00  from holding BMO Covered Call or generate 6.0% return on investment over 90 days.

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

BMO Covered Call  vs.  Harvest Equal Weight

BMO Covered Call

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 11 (%) 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.

Harvest Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind BMO Covered Call and Harvest Equal Weight 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.