Correlation Between BMO Mid and Global X

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

Diversification Opportunities for BMO Mid and Global X

0.93

Correlation Coefficient

BMO Mid  Global X

Almost no diversification

The 3 months correlation between BMO and Global is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Provincial and Global X Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Canadian and BMO Mid 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 Mid Provincial 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 Canadian has no effect on the direction of BMO Mid i.e., BMO Mid and Global X go up and down completely randomly.

Pair Corralation between BMO Mid and Global X

Assuming the 90 days trading horizon BMO Mid is expected to generate 1.86 times less return on investment than Global X. But when comparing it to its historical volatility, BMO Mid Provincial is 1.08 times less risky than Global X. It trades about 0.04 of its potential returns per unit of risk. Global X Canadian is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,817  in Global X Canadian on August 30, 2024 and sell it today you would earn a total of  73.00  from holding Global X Canadian or generate 1.52% return on investment over 90 days.

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

BMO Mid Provincial  vs.  Global X Canadian

BMO Mid Provincial

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Mid Provincial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Mid is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Canadian

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Canadian are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, 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 Mid and Global X

The main advantage of trading using opposite BMO Mid and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid 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 Mid Provincial and Global X Canadian 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 Global Correlations module to find global opportunities by holding instruments from different markets.