Correlation Between BMO Conservative and Vanguard Growth

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

By analyzing existing cross correlation between BMO Conservative ETF and Vanguard Growth Portfolio, you can compare the effects of market volatilities on BMO Conservative and Vanguard Growth 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 Conservative with a short position of Vanguard Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Conservative and Vanguard Growth.

Diversification Opportunities for BMO Conservative and Vanguard Growth

0.83

Correlation Coefficient

BMO Conservative  Vanguard Growth

Very poor diversification

The 3 months correlation between BMO and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO Conservative ETF and Vanguard Growth Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Portfolio and BMO Conservative 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 Conservative ETF are associated (or correlated) with Vanguard Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Portfolio has no effect on the direction of BMO Conservative i.e., BMO Conservative and Vanguard Growth go up and down completely randomly.

Pair Corralation between BMO Conservative and Vanguard Growth

Assuming the 90 days trading horizon BMO Conservative is expected to generate 2.39 times less return on investment than Vanguard Growth. But when comparing it to its historical volatility, BMO Conservative ETF is 1.14 times less risky than Vanguard Growth. It trades about 0.14 of its potential returns per unit of risk. Vanguard Growth Portfolio is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,506  in Vanguard Growth Portfolio on September 3, 2024 and sell it today you would earn a total of  308.00  from holding Vanguard Growth Portfolio or generate 8.78% return on investment over 90 days.

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

BMO Conservative ETF  vs.  Vanguard Growth Portfolio

BMO Conservative ETF

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Conservative ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Conservative is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Growth Portfolio

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Portfolio are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Conservative and Vanguard Growth

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

The idea behind BMO Conservative ETF and Vanguard Growth Portfolio 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.