Correlation Between BMO Equal and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both BMO Equal and Vanguard FTSE 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 Vanguard FTSE 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 Vanguard FTSE Canadian, you can compare the effects of market volatilities on BMO Equal and Vanguard FTSE 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 Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and Vanguard FTSE.
Diversification Opportunities for BMO Equal and Vanguard FTSE
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and Vanguard FTSE Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Canadian 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Canadian has no effect on the direction of BMO Equal i.e., BMO Equal and Vanguard FTSE go up and down completely randomly.
Pair Corralation between BMO Equal and Vanguard FTSE
Assuming the 90 days trading horizon BMO Equal Weight is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, BMO Equal Weight is 1.12 times less risky than Vanguard FTSE. The etf trades about -0.17 of its potential returns per unit of risk. The Vanguard FTSE Canadian is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 3,407 in Vanguard FTSE Canadian on August 27, 2024 and sell it today you would lose (29.00) from holding Vanguard FTSE Canadian or give up 0.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Equal Weight vs. Vanguard FTSE Canadian
Performance |
| Timeline |
| BMO Equal Weight |
| Vanguard FTSE Canadian |
BMO Equal and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and Vanguard FTSE
The main advantage of trading using opposite BMO Equal and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.| BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. iShares Canadian Select | BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. iShares Diversified Monthly |
| Vanguard FTSE vs. iShares SPTSX Capped | Vanguard FTSE vs. iShares Canadian Select | Vanguard FTSE vs. iShares SPTSX Capped | Vanguard FTSE vs. iShares Diversified Monthly |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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