Correlation Between BMO SPTSX and BMO Equal
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and BMO Equal 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 Equal 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 BMO Equal Weight, you can compare the effects of market volatilities on BMO SPTSX and BMO Equal 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 Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and BMO Equal.
Diversification Opportunities for BMO SPTSX and BMO Equal
Pay attention - limited upside
The 3 months correlation between BMO and BMO is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 BMO Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and BMO Equal go up and down completely randomly.
Pair Corralation between BMO SPTSX and BMO Equal
Assuming the 90 days trading horizon BMO SPTSX Equal is expected to generate 0.44 times more return on investment than BMO Equal. However, BMO SPTSX Equal is 2.26 times less risky than BMO Equal. It trades about 0.39 of its potential returns per unit of risk. BMO Equal Weight is currently generating about -0.01 per unit of risk. If you would invest 4,117 in BMO SPTSX Equal on August 28, 2024 and sell it today you would earn a total of 149.00 from holding BMO SPTSX Equal or generate 3.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SPTSX Equal vs. BMO Equal Weight
Performance |
| Timeline |
| BMO SPTSX Equal |
| BMO Equal Weight |
BMO SPTSX and BMO Equal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and BMO Equal
The main advantage of trading using opposite BMO SPTSX and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, BMO Equal 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 Equal will offset losses from the drop in BMO Equal's 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 |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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