Correlation Between Global X and BMO SP
Can any of the company-specific risk be diversified away by investing in both Global X and BMO SP 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 Global X and BMO SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global X NASDAQ 100 and BMO SP 500, you can compare the effects of market volatilities on Global X and BMO SP 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 Global X with a short position of BMO SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and BMO SP.
Diversification Opportunities for Global X and BMO SP
Almost no diversification
The 3 months correlation between Global and BMO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Global X NASDAQ 100 and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 and Global X 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 Global X NASDAQ 100 are associated (or correlated) with BMO SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of Global X i.e., Global X and BMO SP go up and down completely randomly.
Pair Corralation between Global X and BMO SP
Assuming the 90 days trading horizon Global X NASDAQ 100 is expected to generate 1.48 times more return on investment than BMO SP. However, Global X is 1.48 times more volatile than BMO SP 500. It trades about 0.13 of its potential returns per unit of risk. BMO SP 500 is currently generating about 0.14 per unit of risk. If you would invest 4,675 in Global X NASDAQ 100 on November 19, 2024 and sell it today you would earn a total of 4,301 from holding Global X NASDAQ 100 or generate 92.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global X NASDAQ 100 vs. BMO SP 500
Performance |
| Timeline |
| Global X NASDAQ |
| BMO SP 500 |
Global X and BMO SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global X and BMO SP
The main advantage of trading using opposite Global X and BMO SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X position performs unexpectedly, BMO SP 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 SP will offset losses from the drop in BMO SP's long position.| Global X vs. Global X SP | Global X vs. iShares SPTSX Capped | Global X vs. iShares NASDAQ 100 | Global X vs. Global X SPTSX |
| BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO NASDAQ 100 | BMO SP vs. iShares Core SP | BMO SP vs. Vanguard SP 500 |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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