Correlation Between BMO SPTSX and IShares ESG
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and IShares ESG 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 IShares ESG 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 iShares ESG Advanced, you can compare the effects of market volatilities on BMO SPTSX and IShares ESG 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 IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and IShares ESG.
Diversification Opportunities for BMO SPTSX and IShares ESG
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between BMO and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped and iShares ESG Advanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Advanced 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 IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Advanced has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and IShares ESG go up and down completely randomly.
Pair Corralation between BMO SPTSX and IShares ESG
Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.15 times less return on investment than IShares ESG. But when comparing it to its historical volatility, BMO SPTSX Capped is 1.04 times less risky than IShares ESG. It trades about 0.18 of its potential returns per unit of risk. iShares ESG Advanced is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 5,496 in iShares ESG Advanced on September 1, 2024 and sell it today you would earn a total of 2,242 from holding iShares ESG Advanced or generate 40.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
BMO SPTSX Capped vs. iShares ESG Advanced
Performance |
| Timeline |
| BMO SPTSX Capped |
| iShares ESG Advanced |
BMO SPTSX and IShares ESG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and IShares ESG
The main advantage of trading using opposite BMO SPTSX and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, IShares ESG 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 IShares ESG will offset losses from the drop in IShares ESG'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 |
| IShares ESG vs. iShares SPTSX 60 | IShares ESG vs. iShares Core SPTSX | IShares ESG vs. Vanguard FTSE Canada | IShares ESG vs. Global X SPTSX |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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