Correlation Between BMO Aggregate and BMO SP
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO SP 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 SP 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 SP 500, you can compare the effects of market volatilities on BMO Aggregate and BMO SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO SP.
Diversification Opportunities for BMO Aggregate and BMO SP
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between BMO and BMO is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO SP go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO SP
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 7.01 times less return on investment than BMO SP. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.84 times less risky than BMO SP. It trades about 0.15 of its potential returns per unit of risk. BMO SP 500 is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 7,890 in BMO SP 500 on September 5, 2024 and sell it today you would earn a total of 469.00 from holding BMO SP 500 or generate 5.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO SP 500
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO SP 500 |
BMO Aggregate and BMO SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO SP
The main advantage of trading using opposite BMO Aggregate and BMO SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO SP 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 SP will offset losses from the drop in BMO SP'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 SP vs. Franklin Bissett Corporate | BMO SP vs. FT AlphaDEX Industrials | BMO SP vs. Dynamic Active Dividend | BMO SP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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