Correlation Between BMO Long and Vanguard Canadian

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

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

Diversification Opportunities for BMO Long and Vanguard Canadian

0.45

Correlation Coefficient

BMO Long  Vanguard Canadian

Very weak diversification

The 3 months correlation between BMO and Vanguard is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate and Vanguard Canadian Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Canadian Short and BMO Long 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 Long Corporate are associated (or correlated) with Vanguard Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Canadian Short has no effect on the direction of BMO Long i.e., BMO Long and Vanguard Canadian go up and down completely randomly.

Pair Corralation between BMO Long and Vanguard Canadian

Assuming the 90 days trading horizon BMO Long is expected to generate 4.16 times less return on investment than Vanguard Canadian. In addition to that, BMO Long is 4.2 times more volatile than Vanguard Canadian Short Term. It trades about 0.01 of its total potential returns per unit of risk. Vanguard Canadian Short Term is currently generating about 0.2 per unit of volatility. If you would invest  2,385  in Vanguard Canadian Short Term on December 1, 2024 and sell it today you would earn a total of  42.00  from holding Vanguard Canadian Short Term or generate 1.76% return on investment over 90 days.

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

BMO Long Corporate  vs.  Vanguard Canadian Short Term

BMO Long Corporate

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Long Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, BMO Long is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Canadian Short

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Canadian Short Term are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Vanguard Canadian 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 Long and Vanguard Canadian

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

The idea behind BMO Long Corporate and Vanguard Canadian Short Term 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.