Correlation Between BMO SP and Invesco FTSE
Can any of the company-specific risk be diversified away by investing in both BMO SP and Invesco FTSE 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 Invesco FTSE 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 Invesco FTSE RAFI, you can compare the effects of market volatilities on BMO SP and Invesco FTSE 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 Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Invesco FTSE.
Diversification Opportunities for BMO SP and Invesco FTSE
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of BMO SP i.e., BMO SP and Invesco FTSE go up and down completely randomly.
Pair Corralation between BMO SP and Invesco FTSE
Assuming the 90 days trading horizon BMO SP is expected to generate 1.23 times less return on investment than Invesco FTSE. But when comparing it to its historical volatility, BMO SP 500 is 1.06 times less risky than Invesco FTSE. It trades about 0.23 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 4,929 in Invesco FTSE RAFI on August 29, 2024 and sell it today you would earn a total of 292.00 from holding Invesco FTSE RAFI or generate 5.92% 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. Invesco FTSE RAFI
Performance |
| Timeline |
| BMO SP 500 |
| Invesco FTSE RAFI |
BMO SP and Invesco FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and Invesco FTSE
The main advantage of trading using opposite BMO SP and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, Invesco FTSE 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 Invesco FTSE will offset losses from the drop in Invesco FTSE'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 |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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