Correlation Between BMO Balanced and BMO ESG

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

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

Diversification Opportunities for BMO Balanced and BMO ESG

0.73

Correlation Coefficient

BMO Balanced  BMO ESG

Poor diversification

The 3 months correlation between BMO and BMO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BMO Balanced ETF and BMO ESG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO ESG Corporate and BMO 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 BMO Balanced ETF are associated (or correlated) with BMO ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO ESG Corporate has no effect on the direction of BMO Balanced i.e., BMO Balanced and BMO ESG go up and down completely randomly.

Pair Corralation between BMO Balanced and BMO ESG

Assuming the 90 days trading horizon BMO Balanced ETF is expected to generate 1.21 times more return on investment than BMO ESG. However, BMO Balanced is 1.21 times more volatile than BMO ESG Corporate. It trades about 0.15 of its potential returns per unit of risk. BMO ESG Corporate is currently generating about 0.1 per unit of risk. If you would invest  3,001  in BMO Balanced ETF on September 17, 2024 and sell it today you would earn a total of  107.00  from holding BMO Balanced ETF or generate 3.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

BMO Balanced ETF  vs.  BMO ESG Corporate

BMO Balanced ETF

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BMO Balanced is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

BMO ESG Corporate

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO ESG Corporate are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO ESG 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 Balanced and BMO ESG

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

The idea behind BMO Balanced ETF and BMO ESG Corporate 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.