Correlation Between BMO Aggregate and Vanguard FTSE

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

Diversification Opportunities for BMO Aggregate and Vanguard FTSE

-0.06

Correlation Coefficient

BMO Aggregate  Vanguard FTSE

Good diversification

The 3 months correlation between BMO and Vanguard is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Vanguard FTSE Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Global 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Global has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Vanguard FTSE go up and down completely randomly.

Pair Corralation between BMO Aggregate and Vanguard FTSE

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 2.74 times less risky than Vanguard FTSE. The etf trades about -0.39 of its potential returns per unit of risk. The Vanguard FTSE Global is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  6,552  in Vanguard FTSE Global on October 5, 2024 and sell it today you would lose (113.00) from holding Vanguard FTSE Global or give up 1.72% of portfolio value over 90 days.

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

BMO Aggregate Bond  vs.  Vanguard FTSE Global

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.

Vanguard FTSE Global

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Global are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Vanguard FTSE 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 Aggregate and Vanguard FTSE

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

The idea behind BMO Aggregate Bond and Vanguard FTSE Global 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.