Correlation Between BMO Aggregate and IShares SPTSX
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate 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 Aggregate 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 Aggregate Bond and iShares SPTSX Composite, you can compare the effects of market volatilities on BMO Aggregate 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 Aggregate with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and IShares SPTSX.
Diversification Opportunities for BMO Aggregate and IShares SPTSX
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between BMO and IShares is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares SPTSX Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Composite and BMO Aggregate 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 Aggregate Bond 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 Composite has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares SPTSX go up and down completely randomly.
Pair Corralation between BMO Aggregate and IShares SPTSX
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 4.48 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, BMO Aggregate Bond is 1.6 times less risky than IShares SPTSX. It trades about 0.07 of its potential returns per unit of risk. iShares SPTSX Composite is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,475 in iShares SPTSX Composite on September 1, 2024 and sell it today you would earn a total of 340.00 from holding iShares SPTSX Composite or generate 13.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. iShares SPTSX Composite
Performance |
| Timeline |
| BMO Aggregate Bond |
| iShares SPTSX Composite |
BMO Aggregate and IShares SPTSX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and IShares SPTSX
The main advantage of trading using opposite BMO Aggregate and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate 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 Aggregate vs. BMO Short Term Bond | BMO Aggregate vs. BMO Canadian Bank | BMO Aggregate vs. BMO Aggregate Bond | BMO Aggregate vs. BMO Balanced ETF |
| IShares SPTSX vs. Vanguard FTSE Canadian | IShares SPTSX vs. BMO Canadian Dividend | IShares SPTSX vs. Vanguard FTSE Canadian | IShares SPTSX vs. iShares Core SPTSX |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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