Correlation Between Vanguard Conservative and BMO Conservative

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

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

Diversification Opportunities for Vanguard Conservative and BMO Conservative

0.95

Correlation Coefficient

Vanguard Conservative  BMO Conservative

Almost no diversification

The 3 months correlation between Vanguard and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Conservative Income and BMO Conservative ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Conservative ETF and Vanguard Conservative 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 Conservative Income are associated (or correlated) with BMO Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Conservative ETF has no effect on the direction of Vanguard Conservative i.e., Vanguard Conservative and BMO Conservative go up and down completely randomly.

Pair Corralation between Vanguard Conservative and BMO Conservative

Assuming the 90 days trading horizon Vanguard Conservative Income is expected to generate 0.77 times more return on investment than BMO Conservative. However, Vanguard Conservative Income is 1.3 times less risky than BMO Conservative. It trades about 0.04 of its potential returns per unit of risk. BMO Conservative ETF is currently generating about 0.0 per unit of risk. If you would invest  2,617  in Vanguard Conservative Income on December 30, 2024 and sell it today you would earn a total of  20.00  from holding Vanguard Conservative Income or generate 0.76% return on investment over 90 days.

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

Vanguard Conservative Income  vs.  BMO Conservative ETF

Vanguard Conservative

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Conservative Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard Conservative is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Conservative ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Conservative ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Conservative 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 Conservative and BMO Conservative

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

The idea behind Vanguard Conservative Income and BMO Conservative ETF 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.