Correlation Between BMO Aggregate and Forstrong Emerging

Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and Forstrong Emerging 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 Forstrong Emerging 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 Forstrong Emerging Markets, you can compare the effects of market volatilities on BMO Aggregate and Forstrong Emerging 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 Forstrong Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and Forstrong Emerging.

Diversification Opportunities for BMO Aggregate and Forstrong Emerging

0.03

Correlation Coefficient

BMO Aggregate  Forstrong Emerging

Significant diversification

The 3 months correlation between BMO and Forstrong is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Forstrong Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forstrong Emerging 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 Forstrong Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forstrong Emerging has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Forstrong Emerging go up and down completely randomly.

Pair Corralation between BMO Aggregate and Forstrong Emerging

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the Forstrong Emerging. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 140.14 times less risky than Forstrong Emerging. The etf trades about -0.02 of its potential returns per unit of risk. The Forstrong Emerging Markets is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,102  in Forstrong Emerging Markets on October 11, 2024 and sell it today you would earn a total of  7,374  from holding Forstrong Emerging Markets or generate 350.81% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  Forstrong Emerging Markets

BMO Aggregate Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 3 (%) 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.

Forstrong Emerging

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Forstrong Emerging Markets are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Forstrong Emerging displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and Forstrong Emerging

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

The idea behind BMO Aggregate Bond and Forstrong Emerging Markets 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.