Correlation Between BMO SPTSX and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and BMO MSCI 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 SPTSX and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO SPTSX Capped and BMO MSCI Canada, you can compare the effects of market volatilities on BMO SPTSX and BMO MSCI 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 SPTSX with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and BMO MSCI.
Diversification Opportunities for BMO SPTSX and BMO MSCI
Almost no diversification
The 3 months correlation between BMO and BMO is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped and BMO MSCI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI Canada and BMO SPTSX 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 SPTSX Capped are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI Canada has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and BMO MSCI go up and down completely randomly.
Pair Corralation between BMO SPTSX and BMO MSCI
Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.14 times less return on investment than BMO MSCI. But when comparing it to its historical volatility, BMO SPTSX Capped is 1.77 times less risky than BMO MSCI. It trades about 0.1 of its potential returns per unit of risk. BMO MSCI Canada is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,902 in BMO MSCI Canada on September 12, 2024 and sell it today you would earn a total of 1,239 from holding BMO MSCI Canada or generate 42.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 97.77% |
| Values | Daily Returns |
BMO SPTSX Capped vs. BMO MSCI Canada
Performance |
| Timeline |
| BMO SPTSX Capped |
| BMO MSCI Canada |
BMO SPTSX and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and BMO MSCI
The main advantage of trading using opposite BMO SPTSX and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, BMO MSCI 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 MSCI will offset losses from the drop in BMO MSCI's long position.| BMO SPTSX vs. BMO SP 500 | BMO SPTSX vs. Vanguard FTSE Canada | BMO SPTSX vs. Global X SPTSX | BMO SPTSX vs. iShares Core SP |
| BMO MSCI vs. BMO MSCI USA | BMO MSCI vs. BMO MSCI Global | BMO MSCI vs. BMO MSCI EAFE | BMO MSCI vs. BMO Balanced ESG |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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