Correlation Between BMO Covered and BMO Global

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

Diversification Opportunities for BMO Covered and BMO Global

0.88

Correlation Coefficient

BMO Covered  BMO Global

Very poor diversification

The 3 months correlation between BMO and BMO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and BMO Global High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global High 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 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 High has no effect on the direction of BMO Covered i.e., BMO Covered and BMO Global go up and down completely randomly.

Pair Corralation between BMO Covered and BMO Global

Assuming the 90 days trading horizon BMO Covered Call is expected to generate 2.82 times more return on investment than BMO Global. However, BMO Covered is 2.82 times more volatile than BMO Global High. It trades about 0.21 of its potential returns per unit of risk. BMO Global High is currently generating about 0.19 per unit of risk. 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	Strong
Accuracy	100.0%
Values	Daily Returns

BMO Covered Call  vs.  BMO Global High

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.

BMO Global High

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global High are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, BMO Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Covered and BMO Global

The main advantage of trading using opposite BMO Covered and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered 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 Covered Call and BMO Global High 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.