Correlation Between BMO Aggregate and IShares Gold

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

By analyzing existing cross correlation between BMO Aggregate Bond and iShares Gold Bullion, you can compare the effects of market volatilities on BMO Aggregate and IShares Gold 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 BMO Aggregate with a short position of IShares Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and IShares Gold.

Diversification Opportunities for BMO Aggregate and IShares Gold

0.66

Correlation Coefficient

BMO Aggregate  IShares Gold

Poor diversification

The 3 months correlation between BMO and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Gold Bullion and BMO Aggregate 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 BMO Aggregate Bond are associated (or correlated) with IShares Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Gold Bullion has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares Gold go up and down completely randomly.

Pair Corralation between BMO Aggregate and IShares Gold

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 10.67 times less return on investment than IShares Gold. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.37 times less risky than IShares Gold. It trades about 0.07 of its potential returns per unit of risk. iShares Gold Bullion is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,152  in iShares Gold Bullion on December 30, 2024 and sell it today you would earn a total of  557.00  from holding iShares Gold Bullion or generate 17.67% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  iShares Gold Bullion

BMO Aggregate Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Gold Bullion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Gold Bullion are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, IShares Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and IShares Gold

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

The idea behind BMO Aggregate Bond and iShares Gold Bullion 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.