Correlation Between Vanguard Canadian and BMO Mid
Can any of the company-specific risk be diversified away by investing in both Vanguard Canadian and BMO Mid 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 Canadian and BMO Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Canadian Long Term and BMO Mid Corporate, you can compare the effects of market volatilities on Vanguard Canadian and BMO Mid 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 Canadian with a short position of BMO Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Canadian and BMO Mid.
Diversification Opportunities for Vanguard Canadian and BMO Mid
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and BMO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Canadian Long Term and BMO Mid Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Corporate and Vanguard Canadian 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 Canadian Long Term are associated (or correlated) with BMO Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Mid Corporate has no effect on the direction of Vanguard Canadian i.e., Vanguard Canadian and BMO Mid go up and down completely randomly.
Pair Corralation between Vanguard Canadian and BMO Mid
Assuming the 90 days trading horizon Vanguard Canadian is expected to generate 1.5 times less return on investment than BMO Mid. In addition to that, Vanguard Canadian is 2.04 times more volatile than BMO Mid Corporate. It trades about 0.04 of its total potential returns per unit of risk. BMO Mid Corporate is currently generating about 0.11 per unit of volatility. If you would invest 1,541 in BMO Mid Corporate on September 12, 2024 and sell it today you would earn a total of 36.00 from holding BMO Mid Corporate or generate 2.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Canadian Long Term vs. BMO Mid Corporate
Performance |
| Timeline |
| Vanguard Canadian Long |
| BMO Mid Corporate |
Vanguard Canadian and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Canadian and BMO Mid
The main advantage of trading using opposite Vanguard Canadian and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Canadian position performs unexpectedly, BMO Mid 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 Mid will offset losses from the drop in BMO Mid's long position.| Vanguard Canadian vs. iShares Canadian Government | Vanguard Canadian vs. iShares Core Canadian | Vanguard Canadian vs. iShares Canadian Short | Vanguard Canadian vs. iShares Canadian Real |
| BMO Mid vs. iShares Core Canadian | BMO Mid vs. Global X Active | BMO Mid vs. iShares 1 10Yr Laddered | BMO Mid vs. RBC Target 2026 |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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