Correlation Between BMO Global and HPQ Silicon

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

By analyzing existing cross correlation between BMO Global Communications and HPQ Silicon Resources, you can compare the effects of market volatilities on BMO Global and HPQ Silicon 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 Global with a short position of HPQ Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Global and HPQ Silicon.

Diversification Opportunities for BMO Global and HPQ Silicon

-0.77

Correlation Coefficient

BMO Global  HPQ Silicon

Pay attention - limited upside

The 3 months correlation between BMO and HPQ is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO Global Communications and HPQ Silicon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HPQ Silicon Resources and BMO Global 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 Global Communications are associated (or correlated) with HPQ Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HPQ Silicon Resources has no effect on the direction of BMO Global i.e., BMO Global and HPQ Silicon go up and down completely randomly.

Pair Corralation between BMO Global and HPQ Silicon

Assuming the 90 days trading horizon BMO Global Communications is expected to generate 0.18 times more return on investment than HPQ Silicon. However, BMO Global Communications is 5.56 times less risky than HPQ Silicon. It trades about 0.01 of its potential returns per unit of risk. HPQ Silicon Resources is currently generating about -0.02 per unit of risk. If you would invest  3,180  in BMO Global Communications on January 26, 2024 and sell it today you would earn a total of  6.00  from holding BMO Global Communications or generate 0.19% return on investment over 90 days.

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

BMO Global Communications  vs.  HPQ Silicon Resources

BMO Global Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Global Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

HPQ Silicon Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HPQ Silicon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, HPQ Silicon is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with BMO Global and HPQ Silicon

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

The idea behind BMO Global Communications and HPQ Silicon Resources 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.