Correlation Between BMO Short and BMO Aggregate
Can any of the company-specific risk be diversified away by investing in both BMO Short and BMO Aggregate 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 Short and BMO Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Short Term Bond and BMO Aggregate Bond, you can compare the effects of market volatilities on BMO Short and BMO Aggregate 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 Short with a short position of BMO Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and BMO Aggregate.
Diversification Opportunities for BMO Short and BMO Aggregate
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BMO and BMO is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Term Bond and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond and BMO Short 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 Short Term Bond are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of BMO Short i.e., BMO Short and BMO Aggregate go up and down completely randomly.
Pair Corralation between BMO Short and BMO Aggregate
Assuming the 90 days trading horizon BMO Short Term Bond is expected to generate 0.62 times more return on investment than BMO Aggregate. However, BMO Short Term Bond is 1.61 times less risky than BMO Aggregate. It trades about 0.16 of its potential returns per unit of risk. BMO Aggregate Bond is currently generating about -0.03 per unit of risk. If you would invest 4,802 in BMO Short Term Bond on November 2, 2024 and sell it today you would earn a total of 83.00 from holding BMO Short Term Bond or generate 1.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Term Bond vs. BMO Aggregate Bond
Performance |
| Timeline |
| BMO Short Term |
| BMO Aggregate Bond |
BMO Short and BMO Aggregate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and BMO Aggregate
The main advantage of trading using opposite BMO Short and BMO Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, BMO Aggregate 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 Aggregate will offset losses from the drop in BMO Aggregate's long position.The idea behind BMO Short Term Bond and BMO Aggregate Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| BMO Aggregate vs. BMO Short Term Bond | BMO Aggregate vs. BMO Canadian Bank | BMO Aggregate vs. BMO Aggregate Bond | BMO Aggregate vs. BMO Balanced ETF |
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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