Correlation Between BMO SP and First Trust
Can any of the company-specific risk be diversified away by investing in both BMO SP 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 SP 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 SP 500 and First Trust Dow, you can compare the effects of market volatilities on BMO SP 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 SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and First Trust.
Diversification Opportunities for BMO SP and First Trust
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and BMO SP 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 SP 500 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 Dow has no effect on the direction of BMO SP i.e., BMO SP and First Trust go up and down completely randomly.
Pair Corralation between BMO SP and First Trust
Assuming the 90 days trading horizon BMO SP is expected to generate 1.43 times less return on investment than First Trust. But when comparing it to its historical volatility, BMO SP 500 is 1.87 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,354 in First Trust Dow on August 31, 2024 and sell it today you would earn a total of 1,400 from holding First Trust Dow or generate 103.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SP 500 vs. First Trust Dow
Performance |
| Timeline |
| BMO SP 500 |
| First Trust Dow |
BMO SP and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and First Trust
The main advantage of trading using opposite BMO SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP 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 SP vs. BMO SPTSX Capped | BMO SP vs. BMO NASDAQ 100 | BMO SP vs. iShares Core SP | BMO SP vs. Vanguard SP 500 |
| First Trust vs. Brompton Global Dividend | First Trust vs. Global Healthcare Income | First Trust vs. Tech Leaders Income | First Trust vs. Brompton North American |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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