Correlation Between BMO NASDAQ and Global X

Can any of the company-specific risk be diversified away by investing in both BMO NASDAQ 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 NASDAQ 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 NASDAQ 100 and Global X Enhanced, you can compare the effects of market volatilities on BMO NASDAQ 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 NASDAQ with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO NASDAQ and Global X.

Diversification Opportunities for BMO NASDAQ and Global X

0.87

Correlation Coefficient

BMO NASDAQ  Global X

Very poor diversification

The 3 months correlation between BMO and Global is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BMO NASDAQ 100 and Global X Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Enhanced and BMO NASDAQ 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 NASDAQ 100 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 Enhanced has no effect on the direction of BMO NASDAQ i.e., BMO NASDAQ and Global X go up and down completely randomly.

Pair Corralation between BMO NASDAQ and Global X

Assuming the 90 days trading horizon BMO NASDAQ is expected to generate 1.73 times less return on investment than Global X. In addition to that, BMO NASDAQ is 1.81 times more volatile than Global X Enhanced. It trades about 0.1 of its total potential returns per unit of risk. Global X Enhanced is currently generating about 0.32 per unit of volatility. If you would invest  2,519  in Global X Enhanced on August 31, 2024 and sell it today you would earn a total of  118.00  from holding Global X Enhanced or generate 4.68% return on investment over 90 days.

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

BMO NASDAQ 100  vs.  Global X Enhanced

BMO NASDAQ 100

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO NASDAQ may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Global X Enhanced

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Enhanced are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO NASDAQ and Global X

The main advantage of trading using opposite BMO NASDAQ and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO NASDAQ 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 NASDAQ 100 and Global X Enhanced 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.