Correlation Between BMO Europe and Dynamic Active

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

By analyzing existing cross correlation between BMO Europe High and Dynamic Active Retirement, you can compare the effects of market volatilities on BMO Europe and Dynamic Active 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 Europe with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Europe and Dynamic Active.

Diversification Opportunities for BMO Europe and Dynamic Active

0.85

Correlation Coefficient

BMO Europe  Dynamic Active

Very poor diversification

The 3 months correlation between BMO and Dynamic is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO Europe High and Dynamic Active Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Retirement and BMO Europe 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 Europe High are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Retirement has no effect on the direction of BMO Europe i.e., BMO Europe and Dynamic Active go up and down completely randomly.

Pair Corralation between BMO Europe and Dynamic Active

Assuming the 90 days trading horizon BMO Europe is expected to generate 1.37 times less return on investment than Dynamic Active. In addition to that, BMO Europe is 1.97 times more volatile than Dynamic Active Retirement. It trades about 0.15 of its total potential returns per unit of risk. Dynamic Active Retirement is currently generating about 0.4 per unit of volatility. If you would invest  2,153  in Dynamic Active Retirement on April 22, 2025 and sell it today you would earn a total of  189.00  from holding Dynamic Active Retirement or generate 8.78% return on investment over 90 days.

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

BMO Europe High  vs.  Dynamic Active Retirement

BMO Europe High

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Europe High are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Europe is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Dynamic Active Retirement

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Retirement are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dynamic Active may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with BMO Europe and Dynamic Active

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

The idea behind BMO Europe High and Dynamic Active Retirement 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.