Correlation Between Vanguard Total and BMO Short
Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Total 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 Total Market and BMO Short Term Bond, you can compare the effects of market volatilities on Vanguard Total 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 Total with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and BMO Short.
Diversification Opportunities for Vanguard Total and BMO Short
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vanguard and BMO is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Market and BMO Short Term Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Term and Vanguard Total 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 Total Market 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 Total i.e., Vanguard Total and BMO Short go up and down completely randomly.
Pair Corralation between Vanguard Total and BMO Short
Assuming the 90 days trading horizon Vanguard Total Market is expected to generate 4.34 times more return on investment than BMO Short. However, Vanguard Total is 4.34 times more volatile than BMO Short Term Bond. It trades about 0.1 of its potential returns per unit of risk. BMO Short Term Bond is currently generating about 0.1 per unit of risk. If you would invest 7,031 in Vanguard Total Market on September 2, 2024 and sell it today you would earn a total of 3,609 from holding Vanguard Total Market or generate 51.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Total Market vs. BMO Short Term Bond
Performance |
| Timeline |
| Vanguard Total Market |
| BMO Short Term |
Vanguard Total and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Total and BMO Short
The main advantage of trading using opposite Vanguard Total and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Total vs. Vanguard FTSE Developed | Vanguard Total vs. iShares Core Canadian | Vanguard Total vs. BMO Long Federal | Vanguard Total vs. Vanguard FTSE Canada |
| BMO Short vs. BMO Corporate Bond | BMO Short vs. BMO Government Bond | BMO Short vs. BMO Ultra Short Term | BMO Short vs. BMO Short Term IG |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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