Correlation Between BMO Canadian and IShares SPTSX
Can any of the company-specific risk be diversified away by investing in both BMO Canadian 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 Canadian 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 Canadian High and iShares SPTSX Capped, you can compare the effects of market volatilities on BMO Canadian 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 Canadian with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Canadian and IShares SPTSX.
Diversification Opportunities for BMO Canadian and IShares SPTSX
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian High and iShares SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Capped and BMO Canadian 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 Canadian High 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 Capped has no effect on the direction of BMO Canadian i.e., BMO Canadian and IShares SPTSX go up and down completely randomly.
Pair Corralation between BMO Canadian and IShares SPTSX
Assuming the 90 days trading horizon BMO Canadian is expected to generate 3.83 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, BMO Canadian High is 2.36 times less risky than IShares SPTSX. It trades about 0.07 of its potential returns per unit of risk. iShares SPTSX Capped is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,392 in iShares SPTSX Capped on August 30, 2024 and sell it today you would earn a total of 3,528 from holding iShares SPTSX Capped or generate 104.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Canadian High vs. iShares SPTSX Capped
Performance |
| Timeline |
| BMO Canadian High |
| iShares SPTSX Capped |
BMO Canadian and IShares SPTSX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Canadian and IShares SPTSX
The main advantage of trading using opposite BMO Canadian and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Canadian 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 Canadian vs. BMO Short Term Bond | BMO Canadian vs. BMO Canadian Bank | BMO Canadian vs. BMO Aggregate Bond | BMO Canadian vs. BMO Balanced ETF |
| IShares SPTSX vs. BMO Covered Call | IShares SPTSX vs. BMO Canadian High | IShares SPTSX vs. BMO Europe High | IShares SPTSX vs. Harvest Healthcare Leaders |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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