Correlation Between Vanguard and BMO Short
Can any of the company-specific risk be diversified away by investing in both Vanguard and BMO Short 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 Vanguard and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard SP 500 and BMO Short Term IG, you can compare the effects of market volatilities on Vanguard and BMO Short 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 Vanguard with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and BMO Short.
Diversification Opportunities for Vanguard and BMO Short
Excellent diversification
The 3 months correlation between Vanguard and BMO is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and BMO Short Term IG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term and Vanguard 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 Vanguard SP 500 are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Term has no effect on the direction of Vanguard i.e., Vanguard and BMO Short go up and down completely randomly.
Pair Corralation between Vanguard and BMO Short
Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 3.39 times more return on investment than BMO Short. However, Vanguard is 3.39 times more volatile than BMO Short Term IG. It trades about 0.18 of its potential returns per unit of risk. BMO Short Term IG is currently generating about 0.07 per unit of risk. If you would invest 11,120 in Vanguard SP 500 on August 25, 2024 and sell it today you would earn a total of 3,697 from holding Vanguard SP 500 or generate 33.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard SP 500 vs. BMO Short Term IG
Performance |
| Timeline |
| Vanguard SP 500 |
| BMO Short Term |
Vanguard and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard and BMO Short
The main advantage of trading using opposite Vanguard and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| Vanguard vs. Vanguard FTSE Canadian | Vanguard vs. Vanguard Growth Portfolio | Vanguard vs. Vanguard SP 500 | Vanguard vs. Vanguard FTSE Canada |
| BMO Short vs. Mackenzie High Yield | BMO Short vs. Mackenzie Core Plus | BMO Short vs. Mackenzie Canadian Aggregate | BMO Short vs. Mackenzie Core Plus |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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