Correlation Between BMO High and Vanguard Dividend

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

By analyzing existing cross correlation between BMO High Dividend and Vanguard Dividend Appreciation, you can compare the effects of market volatilities on BMO High and Vanguard Dividend 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 High with a short position of Vanguard Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and Vanguard Dividend.

Diversification Opportunities for BMO High and Vanguard Dividend

0.74

Correlation Coefficient

BMO High  Vanguard Dividend

Poor diversification

The 3 months correlation between BMO and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Dividend and Vanguard Dividend Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Dividend and BMO High 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 High Dividend are associated (or correlated) with Vanguard Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Dividend has no effect on the direction of BMO High i.e., BMO High and Vanguard Dividend go up and down completely randomly.

Pair Corralation between BMO High and Vanguard Dividend

Assuming the 90 days trading horizon BMO High Dividend is expected to generate 1.03 times more return on investment than Vanguard Dividend. However, BMO High is 1.03 times more volatile than Vanguard Dividend Appreciation. It trades about 0.0 of its potential returns per unit of risk. Vanguard Dividend Appreciation is currently generating about -0.04 per unit of risk. If you would invest  2,420  in BMO High Dividend on December 30, 2024 and sell it today you would lose (7.00) from holding BMO High Dividend or give up 0.29% of portfolio value over 90 days.

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

BMO High Dividend  vs.  Vanguard Dividend Appreciation

BMO High Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, BMO High is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Vanguard Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Dividend Appreciation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Vanguard Dividend 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 High and Vanguard Dividend

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

The idea behind BMO High Dividend and Vanguard Dividend Appreciation 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.