Correlation Between BMO Balanced and Vanguard Conservative

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

Diversification Opportunities for BMO Balanced and Vanguard Conservative

0.8

Correlation Coefficient

BMO Balanced  Vanguard Conservative

Very poor diversification

The 3 months correlation between BMO and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Balanced ETF and Vanguard Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Conservative 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 Vanguard Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Conservative has no effect on the direction of BMO Balanced i.e., BMO Balanced and Vanguard Conservative go up and down completely randomly.

Pair Corralation between BMO Balanced and Vanguard Conservative

Assuming the 90 days trading horizon BMO Balanced ETF is expected to generate 1.81 times more return on investment than Vanguard Conservative. However, BMO Balanced is 1.81 times more volatile than Vanguard Conservative Income. It trades about 0.34 of its potential returns per unit of risk. Vanguard Conservative Income is currently generating about 0.2 per unit of risk. If you would invest  3,782  in BMO Balanced ETF on April 21, 2025 and sell it today you would earn a total of  385.00  from holding BMO Balanced ETF or generate 10.18% return on investment over 90 days.

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

BMO Balanced ETF  vs.  Vanguard Conservative Income

BMO Balanced ETF

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ETF are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Balanced may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Vanguard Conservative

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Conservative Income are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard 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 Vanguard Conservative

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

The idea behind BMO Balanced ETF and Vanguard Conservative Income 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.