Correlation Between BMO Government and Global X

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

By analyzing existing cross correlation between BMO Government Bond and Global X Active, you can compare the effects of market volatilities on BMO Government and Global X 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 Government with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Government and Global X.

Diversification Opportunities for BMO Government and Global X

0.64

Correlation Coefficient

BMO Government  Global X

Poor diversification

The 3 months correlation between BMO and Global is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding BMO Government Bond and Global X Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Active and BMO Government 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 Government Bond are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Active has no effect on the direction of BMO Government i.e., BMO Government and Global X go up and down completely randomly.

Pair Corralation between BMO Government and Global X

Assuming the 90 days trading horizon BMO Government is expected to generate 1.04 times less return on investment than Global X. In addition to that, BMO Government is 3.78 times more volatile than Global X Active. It trades about 0.07 of its total potential returns per unit of risk. Global X Active is currently generating about 0.26 per unit of volatility. If you would invest  913.00  in Global X Active on October 4, 2024 and sell it today you would earn a total of  94.00  from holding Global X Active or generate 10.3% return on investment over 90 days.

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

BMO Government Bond  vs.  Global X Active

BMO Government Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Government Bond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Government is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Global X Active

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Active are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Global X 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 Government and Global X

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

The idea behind BMO Government Bond and Global X Active 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.