Correlation Between BMO SPTSX and Energy Leaders
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and Energy Leaders 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 Energy Leaders into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO SPTSX Equal and Energy Leaders Plus, you can compare the effects of market volatilities on BMO SPTSX and Energy Leaders 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 Energy Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and Energy Leaders.
Diversification Opportunities for BMO SPTSX and Energy Leaders
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between BMO and Energy is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and Energy Leaders Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Leaders Plus 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 Equal are associated (or correlated) with Energy Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Leaders Plus has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Energy Leaders go up and down completely randomly.
Pair Corralation between BMO SPTSX and Energy Leaders
Assuming the 90 days trading horizon BMO SPTSX Equal is expected to under-perform the Energy Leaders. But the etf apears to be less risky and, when comparing its historical volatility, BMO SPTSX Equal is 1.88 times less risky than Energy Leaders. The etf trades about -0.21 of its potential returns per unit of risk. The Energy Leaders Plus is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 316.00 in Energy Leaders Plus on November 27, 2024 and sell it today you would earn a total of 1.00 from holding Energy Leaders Plus or generate 0.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SPTSX Equal vs. Energy Leaders Plus
Performance |
| Timeline |
| BMO SPTSX Equal |
| Energy Leaders Plus |
BMO SPTSX and Energy Leaders Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and Energy Leaders
The main advantage of trading using opposite BMO SPTSX and Energy Leaders positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, Energy Leaders 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 Energy Leaders will offset losses from the drop in Energy Leaders' long position.| BMO SPTSX vs. BMO Covered Call | BMO SPTSX vs. BMO Canadian Dividend | BMO SPTSX vs. BMO Covered Call | BMO SPTSX vs. BMO Canadian High |
| Energy Leaders vs. Harvest Brand Leaders | Energy Leaders vs. Harvest Equal Weight | Energy Leaders vs. First Asset Energy | Energy Leaders vs. Harvest Healthcare Leaders |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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