Correlation Between BMO Aggregate and BMO NASDAQ
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO NASDAQ 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 Aggregate and BMO NASDAQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Aggregate Bond and BMO NASDAQ 100, you can compare the effects of market volatilities on BMO Aggregate and BMO NASDAQ 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 Aggregate with a short position of BMO NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO NASDAQ.
Diversification Opportunities for BMO Aggregate and BMO NASDAQ
-0.8 | Correlation Coefficient |
Pay attention - limited upside
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 Aggregate Bond and BMO NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO NASDAQ 100 and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with BMO NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO NASDAQ 100 has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO NASDAQ go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO NASDAQ
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 10.46 times less return on investment than BMO NASDAQ. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.82 times less risky than BMO NASDAQ. It trades about 0.03 of its potential returns per unit of risk. BMO NASDAQ 100 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,102 in BMO NASDAQ 100 on September 4, 2024 and sell it today you would earn a total of 2,521 from holding BMO NASDAQ 100 or generate 35.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO NASDAQ 100
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO NASDAQ 100 |
BMO Aggregate and BMO NASDAQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO NASDAQ
The main advantage of trading using opposite BMO Aggregate and BMO NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO NASDAQ 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 NASDAQ will offset losses from the drop in BMO NASDAQ's long position.| 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 |
| BMO NASDAQ vs. Franklin Bissett Corporate | BMO NASDAQ vs. FT AlphaDEX Industrials | BMO NASDAQ vs. Dynamic Active Dividend | BMO NASDAQ 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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