Correlation Between BMO Balanced and BMO Global
Can any of the company-specific risk be diversified away by investing in both BMO Balanced and BMO Global 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 Balanced and BMO Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Balanced ETF and BMO Global High, you can compare the effects of market volatilities on BMO Balanced and BMO Global 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 Balanced with a short position of BMO Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Balanced and BMO Global.
Diversification Opportunities for BMO Balanced and BMO Global
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and BMO is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding BMO Balanced ETF and BMO Global High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global High and BMO Balanced 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 Balanced ETF are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global High has no effect on the direction of BMO Balanced i.e., BMO Balanced and BMO Global go up and down completely randomly.
Pair Corralation between BMO Balanced and BMO Global
Assuming the 90 days trading horizon BMO Balanced is expected to generate 1.66 times less return on investment than BMO Global. But when comparing it to its historical volatility, BMO Balanced ETF is 1.42 times less risky than BMO Global. It trades about 0.16 of its potential returns per unit of risk. BMO Global High is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 3,133 in BMO Global High on August 29, 2024 and sell it today you would earn a total of 141.00 from holding BMO Global High or generate 4.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Balanced ETF vs. BMO Global High
Performance |
| Timeline |
| BMO Balanced ETF |
| BMO Global High |
BMO Balanced and BMO Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Balanced and BMO Global
The main advantage of trading using opposite BMO Balanced and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Balanced position performs unexpectedly, BMO Global 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 Global will offset losses from the drop in BMO Global's long position.| BMO Balanced vs. iShares SPTSX 60 | BMO Balanced vs. iShares Core SP | BMO Balanced vs. iShares Core SPTSX | BMO Balanced vs. BMO Aggregate Bond |
| BMO Global vs. iShares SPTSX 60 | BMO Global vs. iShares Core SP | BMO Global vs. iShares Core SPTSX | BMO Global vs. BMO Aggregate Bond |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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