Correlation Between BMO Aggregate and NextSource Materials

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

Diversification Opportunities for BMO Aggregate and NextSource Materials

-0.26

Correlation Coefficient

BMO Aggregate  NextSource Materials

Very good diversification

The 3 months correlation between BMO and NextSource is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and NextSource Materials go up and down completely randomly.

Pair Corralation between BMO Aggregate and NextSource Materials

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.09 times more return on investment than NextSource Materials. However, BMO Aggregate Bond is 11.76 times less risky than NextSource Materials. It trades about 0.0 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.03 per unit of risk. If you would invest  2,963  in BMO Aggregate Bond on October 6, 2024 and sell it today you would earn a total of  16.00  from holding BMO Aggregate Bond or generate 0.54% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  NextSource Materials

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.

NextSource Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, NextSource Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and NextSource Materials

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

The idea behind BMO Aggregate Bond and NextSource Materials 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.