Correlation Between Global X and BMO Europe

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

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

Diversification Opportunities for Global X and BMO Europe

0.82

Correlation Coefficient

Global X  BMO Europe

Very poor diversification

The 3 months correlation between Global and BMO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Global X Europe and BMO Europe High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Europe High and Global X 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 Global X Europe are associated (or correlated) with BMO Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Europe High has no effect on the direction of Global X i.e., Global X and BMO Europe go up and down completely randomly.

Pair Corralation between Global X and BMO Europe

Assuming the 90 days trading horizon Global X Europe is expected to generate 1.78 times more return on investment than BMO Europe. However, Global X is 1.78 times more volatile than BMO Europe High. It trades about 0.02 of its potential returns per unit of risk. BMO Europe High is currently generating about 0.01 per unit of risk. If you would invest  5,099  in Global X Europe on September 13, 2024 and sell it today you would earn a total of  61.00  from holding Global X Europe or generate 1.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Global X Europe  vs.  BMO Europe High

Global X Europe

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Europe are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Global X is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Europe High

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Global X and BMO Europe

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

The idea behind Global X Europe and BMO Europe High 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.