Correlation Between BMO Covered and Brompton Global

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

Diversification Opportunities for BMO Covered and Brompton Global

0.58

Correlation Coefficient

BMO Covered  Brompton Global

Very weak diversification

The 3 months correlation between BMO and Brompton is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and Brompton Global Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton Global Dividend 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 Brompton Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton Global Dividend has no effect on the direction of BMO Covered i.e., BMO Covered and Brompton Global go up and down completely randomly.

Pair Corralation between BMO Covered and Brompton Global

Assuming the 90 days trading horizon BMO Covered is expected to generate 3.61 times less return on investment than Brompton Global. In addition to that, BMO Covered is 1.1 times more volatile than Brompton Global Dividend. It trades about 0.02 of its total potential returns per unit of risk. Brompton Global Dividend is currently generating about 0.08 per unit of volatility. If you would invest  1,526  in Brompton Global Dividend on March 12, 2024 and sell it today you would earn a total of  524.00  from holding Brompton Global Dividend or generate 34.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

BMO Covered Call  vs.  Brompton Global Dividend

BMO Covered Call

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Covered is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Brompton Global Dividend

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton Global Dividend are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Brompton 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 Covered and Brompton Global

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

The idea behind BMO Covered Call and Brompton Global Dividend 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.