Correlation Between BMO SPTSX and First Asset
Can any of the company-specific risk be diversified away by investing in both BMO SPTSX and First Asset 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 First Asset 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 First Asset Tech, you can compare the effects of market volatilities on BMO SPTSX and First Asset 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 First Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and First Asset.
Diversification Opportunities for BMO SPTSX and First Asset
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and First Asset Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Asset Tech 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 First Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Asset Tech has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and First Asset go up and down completely randomly.
Pair Corralation between BMO SPTSX and First Asset
Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.96 times less return on investment than First Asset. But when comparing it to its historical volatility, BMO SPTSX Equal is 1.48 times less risky than First Asset. It trades about 0.09 of its potential returns per unit of risk. First Asset Tech is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,115 in First Asset Tech on September 13, 2024 and sell it today you would earn a total of 1,117 from holding First Asset Tech or generate 100.18% 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. First Asset Tech
Performance |
| Timeline |
| BMO SPTSX Equal |
| First Asset Tech |
BMO SPTSX and First Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SPTSX and First Asset
The main advantage of trading using opposite BMO SPTSX and First Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX position performs unexpectedly, First Asset 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 Asset will offset losses from the drop in First Asset's long position.| BMO SPTSX vs. BMO Equal Weight | BMO SPTSX vs. BMO Equal Weight | BMO SPTSX vs. BMO Global Infrastructure | BMO SPTSX vs. BMO SPTSX Equal |
| First Asset vs. First Trust AlphaDEX | First Asset vs. FT AlphaDEX Industrials | First Asset vs. BMO SPTSX Equal | First Asset vs. First Trust Senior |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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