Correlation Between Global X and BMO Government

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Can any of the company-specific risk be diversified away by investing in both Global X and BMO Government 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 Global X and BMO Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global X Canadian and BMO Government Bond, you can compare the effects of market volatilities on Global X and BMO Government 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 Global X with a short position of BMO Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and BMO Government.

Diversification Opportunities for Global X and BMO Government

GlobalBMODiversified AwayGlobalBMODiversified Away100%
0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Global and BMO is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Global X Canadian and BMO Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Government Bond and Global X 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 Global X Canadian are associated (or correlated) with BMO Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Government Bond has no effect on the direction of Global X i.e., Global X and BMO Government go up and down completely randomly.

Pair Corralation between Global X and BMO Government

Assuming the 90 days trading horizon Global X Canadian is expected to generate 0.95 times more return on investment than BMO Government. However, Global X Canadian is 1.06 times less risky than BMO Government. It trades about 0.04 of its potential returns per unit of risk. BMO Government Bond is currently generating about 0.03 per unit of risk. If you would invest  4,605  in Global X Canadian on November 27, 2024 and sell it today you would earn a total of  347.00  from holding Global X Canadian or generate 7.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Global X Canadian  vs.  BMO Government Bond

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -3-2-10123
JavaScript chart by amCharts 3.21.15HBB ZGB
       Timeline  
Global X Canadian 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Global X Canadian are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Global X is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4848.54949.55050.5
BMO Government Bond 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in BMO Government Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Government is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb45.54646.547

Global X and BMO Government Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.31-0.95-0.59-0.230.01750.310.671.031.39 0.51.01.52.02.5
JavaScript chart by amCharts 3.21.15HBB ZGB
       Returns  

Pair Trading with Global X and BMO Government

The main advantage of trading using opposite Global X and BMO Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X position performs unexpectedly, BMO Government 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 Government will offset losses from the drop in BMO Government's long position.
The idea behind Global X Canadian and BMO Government 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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