Correlation Between BMO Aggregate and BMO Europe
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and BMO Europe 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 Europe 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 Europe High, you can compare the effects of market volatilities on BMO Aggregate and BMO Europe 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 Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BMO Europe.
Diversification Opportunities for BMO Aggregate and BMO Europe
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and BMO is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BMO Europe High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Europe High 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 Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Europe High has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BMO Europe go up and down completely randomly.
Pair Corralation between BMO Aggregate and BMO Europe
Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.39 times more return on investment than BMO Europe. However, BMO Aggregate Bond is 2.59 times less risky than BMO Europe. It trades about 0.09 of its potential returns per unit of risk. BMO Europe High is currently generating about -0.22 per unit of risk. If you would invest 3,014 in BMO Aggregate Bond on August 29, 2024 and sell it today you would earn a total of 15.00 from holding BMO Aggregate Bond or generate 0.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Aggregate Bond vs. BMO Europe High
Performance |
| Timeline |
| BMO Aggregate Bond |
| BMO Europe High |
BMO Aggregate and BMO Europe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and BMO Europe
The main advantage of trading using opposite BMO Aggregate and BMO Europe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, BMO Europe 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 Europe will offset losses from the drop in BMO Europe'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 Europe vs. BMO Covered Call | BMO Europe vs. BMO High Dividend | BMO Europe vs. BMO Europe High | BMO Europe vs. BMO Covered Call |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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