Correlation Between BMO Aggregate and Vanguard Total

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

Diversification Opportunities for BMO Aggregate and Vanguard Total

-0.33

Correlation Coefficient

BMO Aggregate  Vanguard Total

Very good diversification

The 3 months correlation between BMO and Vanguard is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Vanguard Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Market 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Market has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Vanguard Total go up and down completely randomly.

Pair Corralation between BMO Aggregate and Vanguard Total

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 13.4 times less return on investment than Vanguard Total. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.33 times less risky than Vanguard Total. It trades about 0.05 of its potential returns per unit of risk. Vanguard Total Market is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  10,038  in Vanguard Total Market on August 31, 2024 and sell it today you would earn a total of  1,401  from holding Vanguard Total Market or generate 13.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

BMO Aggregate Bond  vs.  Vanguard Total Market

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 Total Market

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Market are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Total displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and Vanguard Total

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

The idea behind BMO Aggregate Bond and Vanguard Total Market 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .