Correlation Between BMO Covered and PHN Multi

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

Diversification Opportunities for BMO Covered and PHN Multi

0.45

Correlation Coefficient

BMO Covered  PHN Multi

Very weak diversification

The 3 months correlation between BMO and PHN is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and PHN Multi Style All Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHN Multi Style 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 PHN Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHN Multi Style has no effect on the direction of BMO Covered i.e., BMO Covered and PHN Multi go up and down completely randomly.

Pair Corralation between BMO Covered and PHN Multi

Assuming the 90 days trading horizon BMO Covered is expected to generate 2.69 times less return on investment than PHN Multi. But when comparing it to its historical volatility, BMO Covered Call is 1.11 times less risky than PHN Multi. It trades about 0.05 of its potential returns per unit of risk. PHN Multi Style All Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,055  in PHN Multi Style All Cap on August 31, 2024 and sell it today you would earn a total of  828.00  from holding PHN Multi Style All Cap or generate 40.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.73%
Values	Daily Returns

BMO Covered Call  vs.  PHN Multi Style All Cap

BMO Covered Call

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Covered is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

PHN Multi Style

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PHN Multi Style All Cap are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of very weak basic indicators, PHN Multi may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with BMO Covered and PHN Multi

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

The idea behind BMO Covered Call and PHN Multi Style All Cap 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.