Correlation Between BMO Aggregate and First Trust
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and First Trust 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 BMO Aggregate and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Aggregate Bond and First Trust Senior, you can compare the effects of market volatilities on BMO Aggregate and First Trust 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 BMO Aggregate with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and First Trust.
Diversification Opportunities for BMO Aggregate and First Trust
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and First is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and First Trust Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Senior and BMO Aggregate 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 BMO Aggregate Bond are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Senior has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and First Trust go up and down completely randomly.
Pair Corralation between BMO Aggregate and First Trust
Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.73 times more return on investment than First Trust. However, BMO Aggregate Bond is 1.36 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust Senior is currently generating about 0.07 per unit of risk. If you would invest 1,322 in BMO Aggregate Bond on August 29, 2024 and sell it today you would earn a total of 67.00 from holding BMO Aggregate Bond or generate 5.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. First Trust Senior
Performance |
| Timeline |
| BMO Aggregate Bond |
| First Trust Senior |
BMO Aggregate and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and First Trust
The main advantage of trading using opposite BMO Aggregate and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| BMO Aggregate vs. iShares Core MSCI | BMO Aggregate vs. Vanguard FTSE Canada | BMO Aggregate vs. Vanguard Canadian Aggregate | BMO Aggregate vs. iShares Core MSCI |
| First Trust vs. First Trust Global | First Trust vs. FT AlphaDEX Industrials | First Trust vs. First Trust Value | First Trust vs. Global X Active |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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