Correlation Between BMO Aggregate and BMO Equal
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO Equal 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 Equal 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 Equal Weight, you can compare the effects of market volatilities on BMO Aggregate and BMO Equal 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 Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO Equal.
Diversification Opportunities for BMO Aggregate and BMO Equal
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO Equal go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO Equal
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 2.47 times less return on investment than BMO Equal. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.65 times less risky than BMO Equal. It trades about 0.05 of its potential returns per unit of risk. BMO Equal Weight is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,437 in BMO Equal Weight on January 8, 2025 and sell it today you would earn a total of 1,227 from holding BMO Equal Weight or generate 22.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO Equal Weight
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO Equal Weight |
BMO Aggregate and BMO Equal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO Equal
The main advantage of trading using opposite BMO Aggregate and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO Equal 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 Equal will offset losses from the drop in BMO Equal'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 Equal vs. iShares SPTSX Capped | BMO Equal vs. BMO Equal Weight | BMO Equal vs. BMO SPTSX Equal | BMO Equal vs. BMO Equal Weight |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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