Correlation Between Vanguard Total and BMO Long

Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Total 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 Total Market and BMO Long Corporate, you can compare the effects of market volatilities on Vanguard Total 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 Total with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and BMO Long.

Diversification Opportunities for Vanguard Total and BMO Long

-0.12

Correlation Coefficient

Vanguard Total  BMO Long

Good diversification

The 3 months correlation between Vanguard and BMO is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Market and BMO Long Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Corporate and Vanguard Total 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 Total Market 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 Corporate has no effect on the direction of Vanguard Total i.e., Vanguard Total and BMO Long go up and down completely randomly.

Pair Corralation between Vanguard Total and BMO Long

Assuming the 90 days trading horizon Vanguard Total Market is expected to under-perform the BMO Long. In addition to that, Vanguard Total is 1.65 times more volatile than BMO Long Corporate. It trades about -0.1 of its total potential returns per unit of risk. BMO Long Corporate is currently generating about 0.04 per unit of volatility. If you would invest  1,530  in BMO Long Corporate on December 29, 2024 and sell it today you would earn a total of  21.00  from holding BMO Long Corporate or generate 1.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Vanguard Total Market  vs.  BMO Long Corporate

Vanguard Total Market

Risk-Adjusted Performance

Very Weak

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

BMO Long Corporate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Corporate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental 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 Total and BMO Long

The main advantage of trading using opposite Vanguard Total and BMO Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Total Market and BMO Long Corporate 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.