Correlation Between BMO Equal and First Trust
Can any of the company-specific risk be diversified away by investing in both BMO Equal and First Trust 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 Equal and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Equal Weight and First Trust NASDAQ, you can compare the effects of market volatilities on BMO Equal and First Trust 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 Equal with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and First Trust.
Diversification Opportunities for BMO Equal and First Trust
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and BMO Equal 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 Equal Weight are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of BMO Equal i.e., BMO Equal and First Trust go up and down completely randomly.
Pair Corralation between BMO Equal and First Trust
Assuming the 90 days trading horizon BMO Equal is expected to generate 1.98 times less return on investment than First Trust. But when comparing it to its historical volatility, BMO Equal Weight is 1.43 times less risky than First Trust. It trades about 0.09 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 4,935 in First Trust NASDAQ on August 29, 2024 and sell it today you would earn a total of 213.00 from holding First Trust NASDAQ or generate 4.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
BMO Equal Weight vs. First Trust NASDAQ
Performance |
| Timeline |
| BMO Equal Weight |
| First Trust NASDAQ |
BMO Equal and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and First Trust
The main advantage of trading using opposite BMO Equal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| BMO Equal vs. iShares SPTSX Capped | BMO Equal vs. BMO Equal Weight | BMO Equal vs. BMO SPTSX Equal | BMO Equal vs. BMO Equal Weight |
| First Trust vs. BMO Covered Call | First Trust vs. BMO Canadian High | First Trust vs. BMO Europe High | First Trust 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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