Correlation Between Vanguard Canadian and BMO Long

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

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

Diversification Opportunities for Vanguard Canadian and BMO Long

0.99

Correlation Coefficient

Vanguard Canadian  BMO Long

No risk reduction

The 3 months correlation between Vanguard and BMO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Canadian Long Term and BMO Long Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Provincial and Vanguard Canadian 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 Canadian Long Term are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Provincial has no effect on the direction of Vanguard Canadian i.e., Vanguard Canadian and BMO Long go up and down completely randomly.

Pair Corralation between Vanguard Canadian and BMO Long

Assuming the 90 days trading horizon Vanguard Canadian is expected to generate 1.06 times less return on investment than BMO Long. But when comparing it to its historical volatility, Vanguard Canadian Long Term is 1.05 times less risky than BMO Long. It trades about 0.12 of its potential returns per unit of risk. BMO Long Provincial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,259  in BMO Long Provincial on December 1, 2024 and sell it today you would earn a total of  26.00  from holding BMO Long Provincial or generate 2.07% return on investment over 90 days.

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

Vanguard Canadian Long Term  vs.  BMO Long Provincial

Vanguard Canadian Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Canadian Long Term has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Vanguard Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Long Provincial

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Vanguard Canadian Long Term and BMO Long Provincial 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.