Correlation Between Vanguard Canadian and BMO Short
Can any of the company-specific risk be diversified away by investing in both Vanguard Canadian 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 Canadian 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 Canadian Short Term and BMO Short Federal, you can compare the effects of market volatilities on Vanguard Canadian 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 Canadian with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Canadian and BMO Short.
Diversification Opportunities for Vanguard Canadian and BMO Short
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and BMO is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Canadian Short Term and BMO Short Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Federal 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 Short Term 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 Federal has no effect on the direction of Vanguard Canadian i.e., Vanguard Canadian and BMO Short go up and down completely randomly.
Pair Corralation between Vanguard Canadian and BMO Short
Assuming the 90 days trading horizon Vanguard Canadian Short Term is expected to generate 1.35 times more return on investment than BMO Short. However, Vanguard Canadian is 1.35 times more volatile than BMO Short Federal. It trades about 0.15 of its potential returns per unit of risk. BMO Short Federal is currently generating about 0.1 per unit of risk. If you would invest 2,386 in Vanguard Canadian Short Term on September 4, 2024 and sell it today you would earn a total of 14.00 from holding Vanguard Canadian Short Term or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Canadian Short Term vs. BMO Short Federal
Performance |
| Timeline |
| Vanguard Canadian Short |
| BMO Short Federal |
Vanguard Canadian and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Canadian and BMO Short
The main advantage of trading using opposite Vanguard Canadian and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Canadian 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 Canadian vs. BMO Short Federal | Vanguard Canadian vs. BMO Mid Corporate | Vanguard Canadian vs. BMO Long Corporate |
| BMO Short vs. BMO Short Provincial | BMO Short vs. BMO Short Corporate | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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