Correlation Between Vanguard FTSE and BMO SP

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

By analyzing existing cross correlation between Vanguard FTSE Canadian and BMO SP 500, you can compare the effects of market volatilities on Vanguard FTSE and BMO SP 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 FTSE with a short position of BMO SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and BMO SP.

Diversification Opportunities for Vanguard FTSE and BMO SP

0.85

Correlation Coefficient

Vanguard FTSE  BMO SP

Very poor diversification

The 3 months correlation between Vanguard and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Canadian and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 and Vanguard FTSE 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 FTSE Canadian are associated (or correlated) with BMO SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and BMO SP go up and down completely randomly.

Pair Corralation between Vanguard FTSE and BMO SP

Assuming the 90 days trading horizon Vanguard FTSE is expected to generate 4.06 times less return on investment than BMO SP. But when comparing it to its historical volatility, Vanguard FTSE Canadian is 1.62 times less risky than BMO SP. It trades about 0.09 of its potential returns per unit of risk. BMO SP 500 is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,412  in BMO SP 500 on September 24, 2024 and sell it today you would earn a total of  909.00  from holding BMO SP 500 or generate 10.81% return on investment over 90 days.

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

Vanguard FTSE Canadian  vs.  BMO SP 500

Vanguard FTSE Canadian

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canadian are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO SP 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and BMO SP

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

The idea behind Vanguard FTSE Canadian and BMO SP 500 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.