Correlation Between BMO Balanced and BMO Conservative

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

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

Diversification Opportunities for BMO Balanced and BMO Conservative

0.91

Correlation Coefficient

BMO Balanced  BMO Conservative

Almost no diversification

The 3 months correlation between BMO and BMO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding BMO Balanced ESG and BMO Conservative ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Conservative ETF 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 ESG are associated (or correlated) with BMO Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Conservative ETF has no effect on the direction of BMO Balanced i.e., BMO Balanced and BMO Conservative go up and down completely randomly.

Pair Corralation between BMO Balanced and BMO Conservative

Assuming the 90 days trading horizon BMO Balanced ESG is expected to generate 1.13 times more return on investment than BMO Conservative. However, BMO Balanced is 1.13 times more volatile than BMO Conservative ETF. It trades about 0.34 of its potential returns per unit of risk. BMO Conservative ETF is currently generating about 0.23 per unit of risk. If you would invest  3,793  in BMO Balanced ESG on September 16, 2024 and sell it today you would earn a total of  96.00  from holding BMO Balanced ESG or generate 2.53% return on investment over 90 days.

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

BMO Balanced ESG  vs.  BMO Conservative ETF

BMO Balanced ESG

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ESG are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Conservative ETF

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Conservative ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Conservative 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 Conservative

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

The idea behind BMO Balanced ESG and BMO Conservative ETF 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.