Correlation Between Vanguard Total and BMO NASDAQ

Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Vanguard Total and BMO NASDAQ 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 NASDAQ 100, you can compare the effects of market volatilities on Vanguard Total 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 Vanguard Total with a short position of BMO NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and BMO NASDAQ.

Diversification Opportunities for Vanguard Total and BMO NASDAQ

0.89

Correlation Coefficient

Vanguard Total  BMO NASDAQ

Very poor diversification

The 3 months correlation between Vanguard and BMO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Market 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 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 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 Vanguard Total i.e., Vanguard Total and BMO NASDAQ go up and down completely randomly.

Pair Corralation between Vanguard Total and BMO NASDAQ

Assuming the 90 days trading horizon Vanguard Total is expected to generate 1.7 times less return on investment than BMO NASDAQ. But when comparing it to its historical volatility, Vanguard Total Market is 1.29 times less risky than BMO NASDAQ. It trades about 0.11 of its potential returns per unit of risk. BMO NASDAQ 100 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,781  in BMO NASDAQ 100 on September 22, 2024 and sell it today you would earn a total of  5,134  from holding BMO NASDAQ 100 or generate 107.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Vanguard Total Market  vs.  BMO NASDAQ 100

Vanguard Total Market

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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 NASDAQ 100

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 16 (%) 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 Vanguard Total and BMO NASDAQ

The main advantage of trading using opposite Vanguard Total and BMO NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Vanguard Total Market 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.