Correlation Between BMO Aggregate and BMO Low
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO Low 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 Low 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 Low Volatility, you can compare the effects of market volatilities on BMO Aggregate and BMO Low 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 Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO Low.
Diversification Opportunities for BMO Aggregate and BMO Low
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Low Volatility 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 Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Low Volatility has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO Low go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO Low
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 2.5 times less return on investment than BMO Low. But when comparing it to its historical volatility, BMO Aggregate Bond is 1.35 times less risky than BMO Low. It trades about 0.13 of its potential returns per unit of risk. BMO Low Volatility is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 1,916 in BMO Low Volatility on September 13, 2024 and sell it today you would earn a total of 63.00 from holding BMO Low Volatility or generate 3.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO Low Volatility
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO Low Volatility |
BMO Aggregate and BMO Low Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO Low
The main advantage of trading using opposite BMO Aggregate and BMO Low positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO Low 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 Low will offset losses from the drop in BMO Low'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 Low vs. iShares SPTSX Small | BMO Low vs. iShares MSCI World | BMO Low vs. iShares Small Cap | BMO Low vs. iShares MSCI EAFE |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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