Correlation Between BMO SP and Global X
Can any of the company-specific risk be diversified away by investing in both BMO SP and Global X 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 Global X 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 Global X SP, you can compare the effects of market volatilities on BMO SP and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Global X.
Diversification Opportunities for BMO SP and Global X
No risk reduction
The 3 months correlation between BMO and Global is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Global X SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X SP 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X SP has no effect on the direction of BMO SP i.e., BMO SP and Global X go up and down completely randomly.
Pair Corralation between BMO SP and Global X
Assuming the 90 days trading horizon BMO SP is expected to generate 1.0 times less return on investment than Global X. But when comparing it to its historical volatility, BMO SP 500 is 1.02 times less risky than Global X. It trades about 0.11 of its potential returns per unit of risk. Global X SP is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,886 in Global X SP on August 25, 2024 and sell it today you would earn a total of 2,440 from holding Global X SP or generate 49.94% 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. Global X SP
Performance |
| Timeline |
| BMO SP 500 |
| Global X SP |
BMO SP and Global X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and Global X
The main advantage of trading using opposite BMO SP and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, Global X 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 Global X will offset losses from the drop in Global X's long position.| BMO SP vs. BMO MSCI EAFE | BMO SP vs. BMO Dow Jones | BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO MSCI Emerging |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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