Correlation Between BMO Aggregate and BMO Mid
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate 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 BMO Aggregate and BMO Mid 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 BMO Mid Corporate, you can compare the effects of market volatilities on BMO Aggregate 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 BMO Aggregate with a short position of BMO Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO Mid.
Diversification Opportunities for BMO Aggregate and BMO Mid
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond 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 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 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 BMO Aggregate i.e., BMO Aggregate and BMO Mid go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO Mid
Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the BMO Mid. In addition to that, BMO Aggregate is 1.09 times more volatile than BMO Mid Corporate. It trades about -0.09 of its total potential returns per unit of risk. BMO Mid Corporate is currently generating about -0.07 per unit of volatility. If you would invest 1,537 in BMO Mid Corporate on August 27, 2024 and sell it today you would lose (7.00) from holding BMO Mid Corporate or give up 0.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO Mid Corporate
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO Mid Corporate |
BMO Aggregate and BMO Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO Mid
The main advantage of trading using opposite BMO Aggregate and BMO Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate 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.| BMO Aggregate vs. Vanguard FTSE Canada | BMO Aggregate vs. Vanguard Canadian Aggregate | BMO Aggregate vs. iShares Core MSCI | BMO Aggregate vs. iShares Core SP |
| BMO Mid vs. BMO Long Corporate | BMO Mid vs. BMO Short Corporate | BMO Mid vs. BMO High Yield | BMO Mid vs. BMO Emerging Markets |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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