Correlation Between BMO Equal and Global X
Can any of the company-specific risk be diversified away by investing in both BMO Equal and Global X 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 Equal and Global X into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Equal Weight and Global X NASDAQ 100, you can compare the effects of market volatilities on BMO Equal and Global X 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 Equal with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and Global X.
Diversification Opportunities for BMO Equal and Global X
Very poor diversification
The 3 months correlation between BMO and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and Global X NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X NASDAQ and BMO Equal 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 Equal Weight are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X NASDAQ has no effect on the direction of BMO Equal i.e., BMO Equal and Global X go up and down completely randomly.
Pair Corralation between BMO Equal and Global X
Assuming the 90 days trading horizon BMO Equal is expected to generate 2.08 times less return on investment than Global X. In addition to that, BMO Equal is 1.05 times more volatile than Global X NASDAQ 100. It trades about 0.06 of its total potential returns per unit of risk. Global X NASDAQ 100 is currently generating about 0.14 per unit of volatility. If you would invest 4,227 in Global X NASDAQ 100 on August 31, 2024 and sell it today you would earn a total of 4,134 from holding Global X NASDAQ 100 or generate 97.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Equal Weight vs. Global X NASDAQ 100
Performance |
| Timeline |
| BMO Equal Weight |
| Global X NASDAQ |
BMO Equal and Global X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and Global X
The main advantage of trading using opposite BMO Equal and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, Global X 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 Global X will offset losses from the drop in Global X's long position.| BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. BMO Equal Weight | BMO Equal vs. BMO SPTSX Equal | BMO Equal vs. BMO Equal Weight |
| Global X vs. iShares Core SP | Global X vs. BMO SP 500 | Global X vs. Vanguard SP 500 | Global X vs. Global X SP |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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