Correlation Between BMO Aggregate and National Bank

Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and National Bank 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 National Bank 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 National Bank of, you can compare the effects of market volatilities on BMO Aggregate and National Bank 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 National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and National Bank.

Diversification Opportunities for BMO Aggregate and National Bank

-0.76

Correlation Coefficient

BMO Aggregate  National Bank

Pay attention - limited upside

The 3 months correlation between BMO and National is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and National Bank go up and down completely randomly.

Pair Corralation between BMO Aggregate and National Bank

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.71 times more return on investment than National Bank. However, BMO Aggregate Bond is 1.4 times less risky than National Bank. It trades about -0.02 of its potential returns per unit of risk. National Bank of is currently generating about -0.09 per unit of risk. If you would invest  2,983  in BMO Aggregate Bond on October 22, 2024 and sell it today you would lose (3.00) from holding BMO Aggregate Bond or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

BMO Aggregate Bond  vs.  National Bank of

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.

National Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BMO Aggregate and National Bank

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

The idea behind BMO Aggregate Bond and National Bank of 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.