Correlation Between FT AlphaDEX and BMO Aggregate

Can any of the company-specific risk be diversified away by investing in both FT AlphaDEX 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 FT AlphaDEX and BMO Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FT AlphaDEX Industrials and BMO Aggregate Bond, you can compare the effects of market volatilities on FT AlphaDEX 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 FT AlphaDEX with a short position of BMO Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT AlphaDEX and BMO Aggregate.

Diversification Opportunities for FT AlphaDEX and BMO Aggregate

-0.76

Correlation Coefficient

FT AlphaDEX  BMO Aggregate

Pay attention - limited upside

The 3 months correlation between FHG and BMO is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding FT AlphaDEX Industrials 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 FT AlphaDEX 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 FT AlphaDEX Industrials 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 FT AlphaDEX i.e., FT AlphaDEX and BMO Aggregate go up and down completely randomly.

Pair Corralation between FT AlphaDEX and BMO Aggregate

Assuming the 90 days trading horizon FT AlphaDEX Industrials is expected to generate 3.29 times more return on investment than BMO Aggregate. However, FT AlphaDEX is 3.29 times more volatile than BMO Aggregate Bond. It trades about 0.17 of its potential returns per unit of risk. BMO Aggregate Bond is currently generating about 0.07 per unit of risk. If you would invest  4,939  in FT AlphaDEX Industrials on September 3, 2024 and sell it today you would earn a total of  1,225  from holding FT AlphaDEX Industrials or generate 24.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

FT AlphaDEX Industrials  vs.  BMO Aggregate Bond

FT AlphaDEX Industrials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FT AlphaDEX Industrials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, FT AlphaDEX displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FT AlphaDEX and BMO Aggregate

The main advantage of trading using opposite FT AlphaDEX and BMO Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FT AlphaDEX 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 FT AlphaDEX Industrials 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.

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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.