Correlation Between BMO Covered and BMO MSCI

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

Diversification Opportunities for BMO Covered and BMO MSCI

-0.84

Correlation Coefficient

BMO Covered  BMO MSCI

Pay attention - limited upside

The 3 months correlation between BMO and BMO is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and BMO MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI Europe 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 BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI Europe has no effect on the direction of BMO Covered i.e., BMO Covered and BMO MSCI go up and down completely randomly.

Pair Corralation between BMO Covered and BMO MSCI

Assuming the 90 days trading horizon BMO Covered Call is expected to generate 2.04 times more return on investment than BMO MSCI. However, BMO Covered is 2.04 times more volatile than BMO MSCI Europe. It trades about 0.2 of its potential returns per unit of risk. BMO MSCI Europe is currently generating about -0.14 per unit of risk. If you would invest  2,188  in BMO Covered Call on August 31, 2024 and sell it today you would earn a total of  435.00  from holding BMO Covered Call or generate 19.88% return on investment over 90 days.

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

BMO Covered Call  vs.  BMO MSCI Europe

BMO Covered Call

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 15 (%) 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.

BMO MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BMO Covered and BMO MSCI

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

The idea behind BMO Covered Call and BMO MSCI Europe 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.