Correlation Between Visa and BMO Junior

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

By analyzing existing cross correlation between Visa Class A and BMO Junior Gold, you can compare the effects of market volatilities on Visa and BMO Junior 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 Visa with a short position of BMO Junior. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and BMO Junior.

Diversification Opportunities for Visa and BMO Junior

0.54

Correlation Coefficient

Visa  BMO Junior

Very weak diversification

The 3 months correlation between Visa and BMO is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BMO Junior Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Junior Gold and Visa 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 Visa Class A are associated (or correlated) with BMO Junior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Junior Gold has no effect on the direction of Visa i.e., Visa and BMO Junior go up and down completely randomly.

Pair Corralation between Visa and BMO Junior

Taking into account the 90-day investment horizon Visa is expected to generate 1.6 times less return on investment than BMO Junior. But when comparing it to its historical volatility, Visa Class A is 1.75 times less risky than BMO Junior. It trades about 0.09 of its potential returns per unit of risk. BMO Junior Gold is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,597  in BMO Junior Gold on March 8, 2025 and sell it today you would earn a total of  7,353  from holding BMO Junior Gold or generate 111.46% return on investment over 90 days.

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

Visa Class A  vs.  BMO Junior Gold

Visa Class A

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in July 2025.

BMO Junior Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Junior Gold 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 Junior displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and BMO Junior

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

The idea behind Visa Class A and BMO Junior Gold 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.