Correlation Between BMO Global and NBI Global

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

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

Diversification Opportunities for BMO Global and NBI Global

0.74

Correlation Coefficient

BMO Global  NBI Global

Poor diversification

The 3 months correlation between BMO and NBI is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BMO Global Infrastructure and NBI Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI Global Real and BMO Global 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 Global Infrastructure are associated (or correlated) with NBI Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI Global Real has no effect on the direction of BMO Global i.e., BMO Global and NBI Global go up and down completely randomly.

Pair Corralation between BMO Global and NBI Global

Assuming the 90 days trading horizon BMO Global Infrastructure is expected to generate 1.0 times more return on investment than NBI Global. However, BMO Global is 1.0 times more volatile than NBI Global Real. It trades about 0.08 of its potential returns per unit of risk. NBI Global Real is currently generating about 0.06 per unit of risk. If you would invest  4,020  in BMO Global Infrastructure on December 4, 2024 and sell it today you would earn a total of  1,287  from holding BMO Global Infrastructure or generate 32.01% return on investment over 90 days.

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

BMO Global Infrastructure  vs.  NBI Global Real

BMO Global Infrastructure

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Infrastructure are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NBI Global Real

Risk-Adjusted Performance

Very Weak

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

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

The idea behind BMO Global Infrastructure and NBI Global Real 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.