Correlation Between BMO Monthly and Vanguard Balanced

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

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

Diversification Opportunities for BMO Monthly and Vanguard Balanced

0.75

Correlation Coefficient

BMO Monthly  Vanguard Balanced

Poor diversification

The 3 months correlation between BMO and Vanguard is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BMO Monthly Income and Vanguard Balanced Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Balanced and BMO Monthly 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 Monthly Income are associated (or correlated) with Vanguard Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Balanced has no effect on the direction of BMO Monthly i.e., BMO Monthly and Vanguard Balanced go up and down completely randomly.

Pair Corralation between BMO Monthly and Vanguard Balanced

Assuming the 90 days trading horizon BMO Monthly Income is expected to generate 0.77 times more return on investment than Vanguard Balanced. However, BMO Monthly Income is 1.3 times less risky than Vanguard Balanced. It trades about 0.08 of its potential returns per unit of risk. Vanguard Balanced Portfolio is currently generating about 0.01 per unit of risk. If you would invest  1,748  in BMO Monthly Income on December 1, 2024 and sell it today you would earn a total of  33.00  from holding BMO Monthly Income or generate 1.89% return on investment over 90 days.

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

BMO Monthly Income  vs.  Vanguard Balanced Portfolio

BMO Monthly Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Monthly Income are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Monthly is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Balanced

Risk-Adjusted Performance

Very Weak

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

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

The idea behind BMO Monthly Income and Vanguard Balanced 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.