Correlation Between Vanguard Balanced and BMO Monthly

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

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

Diversification Opportunities for Vanguard Balanced and BMO Monthly

0.98

Correlation Coefficient

Vanguard Balanced  BMO Monthly

Almost no diversification

The 3 months correlation between Vanguard and BMO is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Balanced Portfolio and BMO Monthly Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Monthly Income and Vanguard Balanced 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 Vanguard Balanced Portfolio are associated (or correlated) with BMO Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Monthly Income has no effect on the direction of Vanguard Balanced i.e., Vanguard Balanced and BMO Monthly go up and down completely randomly.

Pair Corralation between Vanguard Balanced and BMO Monthly

Assuming the 90 days trading horizon Vanguard Balanced Portfolio is expected to generate 1.0 times more return on investment than BMO Monthly. However, Vanguard Balanced is 1.0 times more volatile than BMO Monthly Income. It trades about 0.42 of its potential returns per unit of risk. BMO Monthly Income is currently generating about 0.25 per unit of risk. If you would invest  3,331  in Vanguard Balanced Portfolio on September 9, 2024 and sell it today you would earn a total of  89.00  from holding Vanguard Balanced Portfolio or generate 2.67% return on investment over 90 days.

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

Vanguard Balanced Portfolio  vs.  BMO Monthly Income

Vanguard Balanced

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Balanced Portfolio are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard Balanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO Monthly Income

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Monthly Income are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Monthly is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Balanced and BMO Monthly

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

The idea behind Vanguard Balanced Portfolio and BMO Monthly Income 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.