Correlation Between BMO Low and IShares SPTSX
Can any of the company-specific risk be diversified away by investing in both BMO Low and IShares SPTSX 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 Low and IShares SPTSX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Low Volatility and iShares SPTSX Small, you can compare the effects of market volatilities on BMO Low and IShares SPTSX 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 Low with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Low and IShares SPTSX.
Diversification Opportunities for BMO Low and IShares SPTSX
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and IShares is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and iShares SPTSX Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Small and BMO Low 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 Low Volatility are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Small has no effect on the direction of BMO Low i.e., BMO Low and IShares SPTSX go up and down completely randomly.
Pair Corralation between BMO Low and IShares SPTSX
Assuming the 90 days trading horizon BMO Low is expected to generate 4.9 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, BMO Low Volatility is 1.25 times less risky than IShares SPTSX. It trades about 0.02 of its potential returns per unit of risk. iShares SPTSX Small is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,129 in iShares SPTSX Small on September 13, 2024 and sell it today you would earn a total of 48.00 from holding iShares SPTSX Small or generate 2.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Low Volatility vs. iShares SPTSX Small
Performance |
| Timeline |
| BMO Low Volatility |
| iShares SPTSX Small |
BMO Low and IShares SPTSX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Low and IShares SPTSX
The main advantage of trading using opposite BMO Low and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Low position performs unexpectedly, IShares SPTSX 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 IShares SPTSX will offset losses from the drop in IShares SPTSX's long position.| BMO Low vs. iShares SPTSX Small | BMO Low vs. iShares MSCI World | BMO Low vs. iShares Small Cap | BMO Low vs. iShares MSCI EAFE |
| IShares SPTSX vs. iShares Convertible Bond | IShares SPTSX vs. iShares SP Mid Cap | IShares SPTSX vs. iShares Edge MSCI | IShares SPTSX vs. iShares Flexible Monthly |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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