Correlation Between BMO Aggregate and Energy Leaders
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and Energy Leaders 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 Energy Leaders 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 Energy Leaders Plus, you can compare the effects of market volatilities on BMO Aggregate and Energy Leaders 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 Energy Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and Energy Leaders.
Diversification Opportunities for BMO Aggregate and Energy Leaders
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between BMO and Energy is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Energy Leaders Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Leaders Plus 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 Energy Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Leaders Plus has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Energy Leaders go up and down completely randomly.
Pair Corralation between BMO Aggregate and Energy Leaders
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 1.03 times less return on investment than Energy Leaders. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.71 times less risky than Energy Leaders. It trades about 0.07 of its potential returns per unit of risk. Energy Leaders Plus is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 314.00 in Energy Leaders Plus on September 3, 2024 and sell it today you would earn a total of 16.00 from holding Energy Leaders Plus or generate 5.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. Energy Leaders Plus
Performance |
| Timeline |
| BMO Aggregate Bond |
| Energy Leaders Plus |
BMO Aggregate and Energy Leaders Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and Energy Leaders
The main advantage of trading using opposite BMO Aggregate and Energy Leaders positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, Energy Leaders 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 Energy Leaders will offset losses from the drop in Energy Leaders' 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 |
| Energy Leaders vs. CI Gold Giants | Energy Leaders vs. First Asset Tech | Energy Leaders vs. CI Canada Lifeco | Energy Leaders vs. Harvest Healthcare Leaders |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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