Correlation Between BMO Aggregate and Global X

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

Diversification Opportunities for BMO Aggregate and Global X

0.07

Correlation Coefficient

BMO Aggregate  Global X

Significant diversification

The 3 months correlation between BMO and Global is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Global X Inovestor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Inovestor 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Inovestor has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Global X go up and down completely randomly.

Pair Corralation between BMO Aggregate and Global X

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 1.0 times more return on investment than Global X. However, BMO Aggregate is 1.0 times more volatile than Global X Inovestor. It trades about 0.07 of its potential returns per unit of risk. Global X Inovestor is currently generating about -0.58 per unit of risk. If you would invest  1,380  in BMO Aggregate Bond on September 24, 2024 and sell it today you would earn a total of  9.00  from holding BMO Aggregate Bond or generate 0.65% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  Global X Inovestor

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. In spite of very healthy technical and fundamental indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Inovestor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global X Inovestor has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with BMO Aggregate and Global X

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

The idea behind BMO Aggregate Bond and Global X Inovestor 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.