Correlation Between Global X and BMO NASDAQ

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

By analyzing existing cross correlation between Global X NASDAQ 100 and BMO NASDAQ 100, you can compare the effects of market volatilities on Global X 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 Global X with a short position of BMO NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and BMO NASDAQ.

Diversification Opportunities for Global X and BMO NASDAQ

1.0

Correlation Coefficient

Global X  BMO NASDAQ

No risk reduction

The 3 months correlation between Global and BMO is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Global X NASDAQ 100 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 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 NASDAQ 100 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 Global X i.e., Global X and BMO NASDAQ go up and down completely randomly.

Pair Corralation between Global X and BMO NASDAQ

Assuming the 90 days trading horizon Global X NASDAQ 100 is expected to generate 1.02 times more return on investment than BMO NASDAQ. However, Global X is 1.02 times more volatile than BMO NASDAQ 100. It trades about 0.24 of its potential returns per unit of risk. BMO NASDAQ 100 is currently generating about 0.24 per unit of risk. If you would invest  7,310  in Global X NASDAQ 100 on September 4, 2024 and sell it today you would earn a total of  1,197  from holding Global X NASDAQ 100 or generate 16.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Global X NASDAQ 100  vs.  BMO NASDAQ 100

Global X NASDAQ

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X NASDAQ 100 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO NASDAQ 100

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global X and BMO NASDAQ

The main advantage of trading using opposite Global X and BMO NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X 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.

The idea behind Global X NASDAQ 100 and BMO NASDAQ 100 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.