Correlation Between Vanguard FTSE and BMO High

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

By analyzing existing cross correlation between Vanguard FTSE Canada and BMO High Dividend, you can compare the effects of market volatilities on Vanguard FTSE and BMO High 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 Vanguard FTSE with a short position of BMO High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and BMO High.

Diversification Opportunities for Vanguard FTSE and BMO High

0.88

Correlation Coefficient

Vanguard FTSE  BMO High

Very poor diversification

The 3 months correlation between Vanguard and BMO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canada and BMO High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO High Dividend and Vanguard FTSE 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 Vanguard FTSE Canada are associated (or correlated) with BMO High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO High Dividend has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and BMO High go up and down completely randomly.

Pair Corralation between Vanguard FTSE and BMO High

Assuming the 90 days trading horizon Vanguard FTSE Canada is expected to under-perform the BMO High. In addition to that, Vanguard FTSE is 1.09 times more volatile than BMO High Dividend. It trades about -0.2 of its total potential returns per unit of risk. BMO High Dividend is currently generating about 0.0 per unit of volatility. If you would invest  2,477  in BMO High Dividend on September 22, 2024 and sell it today you would lose (1.00) from holding BMO High Dividend or give up 0.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Vanguard FTSE Canada  vs.  BMO High Dividend

Vanguard FTSE Canada

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canada are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO High Dividend

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO High Dividend are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, BMO High is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard FTSE and BMO High

The main advantage of trading using opposite Vanguard FTSE and BMO High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE position performs unexpectedly, BMO High 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 High will offset losses from the drop in BMO High's long position.

The idea behind Vanguard FTSE Canada and BMO High Dividend 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.