Correlation Between BMO Real and Global X

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

Diversification Opportunities for BMO Real and Global X

-0.35

Correlation Coefficient

BMO Real  Global X

Very good diversification

The 3 months correlation between BMO and Global is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding BMO Real Return 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 Real 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 Real Return 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 Real i.e., BMO Real and Global X go up and down completely randomly.

Pair Corralation between BMO Real and Global X

Assuming the 90 days trading horizon BMO Real Return is expected to generate 0.22 times more return on investment than Global X. However, BMO Real Return is 4.63 times less risky than Global X. It trades about -0.11 of its potential returns per unit of risk. Global X Enhanced is currently generating about -0.09 per unit of risk. If you would invest  1,460  in BMO Real Return on October 8, 2024 and sell it today you would lose (14.00) from holding BMO Real Return or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

BMO Real Return  vs.  Global X Enhanced

BMO Real Return

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Real Return are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Real is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Enhanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Real and Global X

The main advantage of trading using opposite BMO Real and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Real 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 Real Return 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.