Correlation Between BMO Aggregate and BMO Core
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO Core 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 Core 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 Core Plus, you can compare the effects of market volatilities on BMO Aggregate and BMO Core 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 Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO Core.
Diversification Opportunities for BMO Aggregate and BMO Core
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Core 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 BMO Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Core Plus has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO Core go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO Core
Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the BMO Core. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 1.4 times less risky than BMO Core. The etf trades about -0.11 of its potential returns per unit of risk. The BMO Core Plus is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 2,793 in BMO Core Plus on August 25, 2024 and sell it today you would lose (15.00) from holding BMO Core Plus or give up 0.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO Core Plus
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO Core Plus |
BMO Aggregate and BMO Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO Core
The main advantage of trading using opposite BMO Aggregate and BMO Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO Core 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 Core will offset losses from the drop in BMO Core's long position.| BMO Aggregate vs. Mackenzie Core Plus | BMO Aggregate vs. Mackenzie Unconstrained Bond | BMO Aggregate vs. Mackenzie Floating Rate | BMO Aggregate vs. Mackenzie Canadian Aggregate |
| BMO Core vs. BMO Mid Term IG | BMO Core vs. BMO Sustainable Global | BMO Core vs. BMO Government Bond | BMO Core 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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