Correlation Between First Trust and BMO Balanced
Can any of the company-specific risk be diversified away by investing in both First Trust and BMO Balanced 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 First Trust and BMO Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Global and BMO Balanced ETF, you can compare the effects of market volatilities on First Trust and BMO Balanced 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 First Trust with a short position of BMO Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and BMO Balanced.
Diversification Opportunities for First Trust and BMO Balanced
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and BMO is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and BMO Balanced ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Balanced ETF and First Trust 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 First Trust Global are associated (or correlated) with BMO Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Balanced ETF has no effect on the direction of First Trust i.e., First Trust and BMO Balanced go up and down completely randomly.
Pair Corralation between First Trust and BMO Balanced
Assuming the 90 days trading horizon First Trust is expected to generate 1.96 times less return on investment than BMO Balanced. But when comparing it to its historical volatility, First Trust Global is 1.14 times less risky than BMO Balanced. It trades about 0.26 of its potential returns per unit of risk. BMO Balanced ETF is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 3,953 in BMO Balanced ETF on September 4, 2024 and sell it today you would earn a total of 148.00 from holding BMO Balanced ETF or generate 3.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Global vs. BMO Balanced ETF
Performance |
| Timeline |
| First Trust Global |
| BMO Balanced ETF |
First Trust and BMO Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and BMO Balanced
The main advantage of trading using opposite First Trust and BMO Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, BMO Balanced 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 Balanced will offset losses from the drop in BMO Balanced's long position.| First Trust vs. BMO Balanced ETF | First Trust vs. BMO Growth ETF | First Trust vs. iShares Core Conservative | First Trust vs. Vanguard Conservative ETF |
| BMO Balanced vs. Vanguard Growth Portfolio | BMO Balanced vs. Vanguard Conservative ETF | BMO Balanced vs. iShares Core Balanced | BMO Balanced vs. Vanguard All Equity ETF |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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