Correlation Between BMO Aggregate and Vanguard Global

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

Diversification Opportunities for BMO Aggregate and Vanguard Global

0.68

Correlation Coefficient

BMO Aggregate  Vanguard Global

Poor diversification

The 3 months correlation between BMO and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Vanguard Global ex US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Global ex 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 Vanguard Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Global ex has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Vanguard Global go up and down completely randomly.

Pair Corralation between BMO Aggregate and Vanguard Global

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 1.63 times more return on investment than Vanguard Global. However, BMO Aggregate is 1.63 times more volatile than Vanguard Global ex US. It trades about -0.25 of its potential returns per unit of risk. Vanguard Global ex US is currently generating about -0.51 per unit of risk. If you would invest  1,406  in BMO Aggregate Bond on October 11, 2024 and sell it today you would lose (22.00) from holding BMO Aggregate Bond or give up 1.56% of portfolio value over 90 days.

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

BMO Aggregate Bond  vs.  Vanguard Global ex US

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.

Vanguard Global ex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Global ex US has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Global 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 Vanguard Global

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

The idea behind BMO Aggregate Bond and Vanguard Global ex US 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.

Check out your portfolio center.

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.