Correlation Between First Trust and BMO Global
Can any of the company-specific risk be diversified away by investing in both First Trust and BMO Global 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 First Trust and BMO Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Indxx and BMO Global Consumer, you can compare the effects of market volatilities on First Trust and BMO Global 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 First Trust with a short position of BMO Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and BMO Global.
Diversification Opportunities for First Trust and BMO Global
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between First and BMO is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and BMO Global Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Consumer and First Trust 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 First Trust Indxx are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Consumer has no effect on the direction of First Trust i.e., First Trust and BMO Global go up and down completely randomly.
Pair Corralation between First Trust and BMO Global
Assuming the 90 days trading horizon First Trust Indxx is expected to generate 1.1 times more return on investment than BMO Global. However, First Trust is 1.1 times more volatile than BMO Global Consumer. It trades about 0.11 of its potential returns per unit of risk. BMO Global Consumer is currently generating about 0.02 per unit of risk. If you would invest 819.00 in First Trust Indxx on September 5, 2024 and sell it today you would earn a total of 334.00 from holding First Trust Indxx or generate 40.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
First Trust Indxx vs. BMO Global Consumer
Performance |
| Timeline |
| First Trust Indxx |
| BMO Global Consumer |
First Trust and BMO Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and BMO Global
The main advantage of trading using opposite First Trust and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, BMO Global 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 Global will offset losses from the drop in BMO Global's long position.| First Trust vs. First Trust Indxx | First Trust vs. First Trust Senior | First Trust vs. First Trust AlphaDEX | First Trust vs. First Trust Indxx |
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Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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