Correlation Between BMO Aggregate and NBI High

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

Diversification Opportunities for BMO Aggregate and NBI High

0.65

Correlation Coefficient

BMO Aggregate  NBI High

Poor diversification

The 3 months correlation between BMO and NBI is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and NBI High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI High Yield 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 NBI High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI High Yield has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and NBI High go up and down completely randomly.

Pair Corralation between BMO Aggregate and NBI High

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 1.37 times less return on investment than NBI High. But when comparing it to its historical volatility, BMO Aggregate Bond is 1.02 times less risky than NBI High. It trades about 0.07 of its potential returns per unit of risk. NBI High Yield is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,960  in NBI High Yield on September 23, 2024 and sell it today you would earn a total of  206.00  from holding NBI High Yield or generate 10.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.89%
Values	Daily Returns

BMO Aggregate Bond  vs.  NBI High Yield

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

NBI High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BMO Aggregate and NBI High

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

The idea behind BMO Aggregate Bond and NBI High Yield 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.