Correlation Between BMO Aggregate and BetaPro Natural

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

By analyzing existing cross correlation between BMO Aggregate Bond and BetaPro Natural Gas, you can compare the effects of market volatilities on BMO Aggregate and BetaPro Natural 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 Aggregate with a short position of BetaPro Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and BetaPro Natural.

Diversification Opportunities for BMO Aggregate and BetaPro Natural

0.19

Correlation Coefficient

BMO Aggregate  BetaPro Natural

Average diversification

The 3 months correlation between BMO and BetaPro is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and BetaPro Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro Natural Gas and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with BetaPro Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro Natural Gas has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and BetaPro Natural go up and down completely randomly.

Pair Corralation between BMO Aggregate and BetaPro Natural

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the BetaPro Natural. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 31.94 times less risky than BetaPro Natural. The etf trades about -0.16 of its potential returns per unit of risk. The BetaPro Natural Gas is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,492  in BetaPro Natural Gas on October 6, 2024 and sell it today you would lose (262.00) from holding BetaPro Natural Gas or give up 7.5% of portfolio value over 90 days.

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

BMO Aggregate Bond  vs.  BetaPro Natural Gas

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

BetaPro Natural Gas

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro Natural Gas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BetaPro Natural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BMO Aggregate and BetaPro Natural

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

The idea behind BMO Aggregate Bond and BetaPro Natural Gas 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..