Correlation Between BMO SPTSX and BMO Covered
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and BMO Covered 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 Covered 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 Covered Call, you can compare the effects of market volatilities on BMO SPTSX and BMO Covered 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 Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and BMO Covered.
Diversification Opportunities for BMO SPTSX and BMO Covered
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and BMO is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and BMO Covered go up and down completely randomly.
Pair Corralation between BMO SPTSX and BMO Covered
Assuming the 90 days trading horizon BMO SPTSX Equal is expected to generate 1.16 times more return on investment than BMO Covered. However, BMO SPTSX is 1.16 times more volatile than BMO Covered Call. It trades about 0.08 of its potential returns per unit of risk. BMO Covered Call is currently generating about 0.03 per unit of risk. If you would invest 3,218 in BMO SPTSX Equal on August 24, 2024 and sell it today you would earn a total of 1,036 from holding BMO SPTSX Equal or generate 32.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SPTSX Equal vs. BMO Covered Call
Performance |
| Timeline |
| BMO SPTSX Equal |
| BMO Covered Call |
BMO SPTSX and BMO Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and BMO Covered
The main advantage of trading using opposite BMO SPTSX and BMO Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, BMO Covered 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 Covered will offset losses from the drop in BMO Covered'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 |
| BMO Covered vs. BMO Covered Call | BMO Covered vs. BMO Canadian High | BMO Covered vs. BMO Europe High | BMO Covered 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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