Correlation Between BMO Balanced and BMO Growth

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

Diversification Opportunities for BMO Balanced and BMO Growth

0.98

Correlation Coefficient

BMO Balanced  BMO Growth

Almost no diversification

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

Pair Corralation between BMO Balanced and BMO Growth

Assuming the 90 days trading horizon BMO Balanced is expected to generate 1.3 times less return on investment than BMO Growth. But when comparing it to its historical volatility, BMO Balanced ESG is 1.04 times less risky than BMO Growth. It trades about 0.21 of its potential returns per unit of risk. BMO Growth ETF is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,378  in BMO Growth ETF on September 17, 2024 and sell it today you would earn a total of  304.00  from holding BMO Growth ETF or generate 6.94% 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 Growth ETF

BMO Balanced ESG

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ESG are ranked lower than 16 (%) 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 Growth ETF

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Growth ETF are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Balanced and BMO Growth

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

The idea behind BMO Balanced ESG and BMO Growth 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 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.