Correlation Between BMO Conservative and BMO Growth
Can any of the company-specific risk be diversified away by investing in both BMO Conservative and BMO Growth 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 Conservative and BMO Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Conservative ETF and BMO Growth ETF, you can compare the effects of market volatilities on BMO Conservative and BMO Growth 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 Conservative with a short position of BMO Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Conservative and BMO Growth.
Diversification Opportunities for BMO Conservative and BMO Growth
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Conservative ETF and BMO Growth ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Growth ETF and BMO Conservative 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 Conservative ETF are associated (or correlated) with BMO Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Growth ETF has no effect on the direction of BMO Conservative i.e., BMO Conservative and BMO Growth go up and down completely randomly.
Pair Corralation between BMO Conservative and BMO Growth
Assuming the 90 days trading horizon BMO Conservative is expected to generate 1.64 times less return on investment than BMO Growth. But when comparing it to its historical volatility, BMO Conservative ETF is 1.35 times less risky than BMO Growth. It trades about 0.12 of its potential returns per unit of risk. BMO Growth ETF is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,169 in BMO Growth ETF on August 25, 2024 and sell it today you would earn a total of 415.00 from holding BMO Growth ETF or generate 9.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Conservative ETF vs. BMO Growth ETF
Performance |
| Timeline |
| BMO Conservative ETF |
| BMO Growth ETF |
BMO Conservative and BMO Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Conservative and BMO Growth
The main advantage of trading using opposite BMO Conservative and BMO Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Conservative position performs unexpectedly, BMO Growth 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 Growth will offset losses from the drop in BMO Growth's long position.| BMO Conservative vs. First Trust Senior | BMO Conservative vs. First Trust Value | BMO Conservative vs. FT AlphaDEX Industrials | BMO Conservative vs. Global X Active |
| BMO Growth vs. IA Clarington Core | BMO Growth vs. IA Clarington Floating | BMO Growth vs. IA Clarington Strategic | BMO Growth vs. Purpose Global 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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