Correlation Between BMO Aggregate and IShares NASDAQ

Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and IShares NASDAQ 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 IShares NASDAQ 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 iShares NASDAQ 100, you can compare the effects of market volatilities on BMO Aggregate and IShares NASDAQ 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 IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and IShares NASDAQ.

Diversification Opportunities for BMO Aggregate and IShares NASDAQ

-0.7

Correlation Coefficient

BMO Aggregate  IShares NASDAQ

Excellent diversification

The 3 months correlation between BMO and IShares is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 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 IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares NASDAQ go up and down completely randomly.

Pair Corralation between BMO Aggregate and IShares NASDAQ

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 9.1 times less return on investment than IShares NASDAQ. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.96 times less risky than IShares NASDAQ. It trades about 0.03 of its potential returns per unit of risk. iShares NASDAQ 100 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,109  in iShares NASDAQ 100 on September 4, 2024 and sell it today you would earn a total of  1,227  from holding iShares NASDAQ 100 or generate 29.86% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  iShares NASDAQ 100

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.

iShares NASDAQ 100

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Aggregate and IShares NASDAQ

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

The idea behind BMO Aggregate Bond and iShares NASDAQ 100 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.