Correlation Between BMO NASDAQ and Guardian

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

By analyzing existing cross correlation between BMO NASDAQ 100 and Guardian i3 Quality, you can compare the effects of market volatilities on BMO NASDAQ and Guardian 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 NASDAQ with a short position of Guardian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO NASDAQ and Guardian.

Diversification Opportunities for BMO NASDAQ and Guardian

0.9

Correlation Coefficient

BMO NASDAQ  Guardian

Almost no diversification

The 3 months correlation between BMO and Guardian is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BMO NASDAQ 100 and Guardian i3 Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian i3 Quality and BMO NASDAQ 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 NASDAQ 100 are associated (or correlated) with Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guardian i3 Quality has no effect on the direction of BMO NASDAQ i.e., BMO NASDAQ and Guardian go up and down completely randomly.

Pair Corralation between BMO NASDAQ and Guardian

Assuming the 90 days trading horizon BMO NASDAQ is expected to generate 1.21 times less return on investment than Guardian. In addition to that, BMO NASDAQ is 1.13 times more volatile than Guardian i3 Quality. It trades about 0.09 of its total potential returns per unit of risk. Guardian i3 Quality is currently generating about 0.13 per unit of volatility. If you would invest  2,631  in Guardian i3 Quality on September 13, 2024 and sell it today you would earn a total of  529.00  from holding Guardian i3 Quality or generate 20.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.32%
Values	Daily Returns

BMO NASDAQ 100  vs.  Guardian i3 Quality

BMO NASDAQ 100

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guardian i3 Quality

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guardian i3 Quality are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Guardian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO NASDAQ and Guardian

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

The idea behind BMO NASDAQ 100 and Guardian i3 Quality 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 Anywhere module to track or share privately all of your investments from the convenience of any device.