Correlation Between BMO Aggregate and BMO International
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO International 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 International 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 International Dividend, you can compare the effects of market volatilities on BMO Aggregate and BMO International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO International.
Diversification Opportunities for BMO Aggregate and BMO International
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO International Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO International has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO International go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO International
Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.59 times more return on investment than BMO International. However, BMO Aggregate Bond is 1.69 times less risky than BMO International. It trades about 0.17 of its potential returns per unit of risk. BMO International Dividend is currently generating about 0.01 per unit of risk. If you would invest 1,383 in BMO Aggregate Bond on September 1, 2024 and sell it today you would earn a total of 22.00 from holding BMO Aggregate Bond or generate 1.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO International Dividend
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO International |
BMO Aggregate and BMO International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO International
The main advantage of trading using opposite BMO Aggregate and BMO International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO International 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 International will offset losses from the drop in BMO International'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 |
| BMO International vs. Vanguard FTSE Emerging | BMO International vs. Vanguard FTSE Developed | BMO International vs. Vanguard Total Market | BMO International vs. Vanguard Canadian Aggregate |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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