Correlation Between Energy Leaders and BMO Growth

Can any of the company-specific risk be diversified away by investing in both Energy Leaders and BMO Growth 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 Energy Leaders and BMO Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy Leaders Plus and BMO Growth ETF, you can compare the effects of market volatilities on Energy Leaders and BMO Growth 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 Energy Leaders with a short position of BMO Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Leaders and BMO Growth.

Diversification Opportunities for Energy Leaders and BMO Growth

0.78

Correlation Coefficient

Energy Leaders  BMO Growth

Poor diversification

The 3 months correlation between Energy and BMO is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Energy Leaders Plus and BMO Growth ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Growth ETF and Energy Leaders 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 Energy Leaders Plus are associated (or correlated) with BMO Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Growth ETF has no effect on the direction of Energy Leaders i.e., Energy Leaders and BMO Growth go up and down completely randomly.

Pair Corralation between Energy Leaders and BMO Growth

Assuming the 90 days trading horizon Energy Leaders Plus is expected to under-perform the BMO Growth. In addition to that, Energy Leaders is 1.54 times more volatile than BMO Growth ETF. It trades about -0.18 of its total potential returns per unit of risk. BMO Growth ETF is currently generating about -0.13 per unit of volatility. If you would invest  4,117  in BMO Growth ETF on February 2, 2024 and sell it today you would lose (55.00) from holding BMO Growth ETF or give up 1.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Energy Leaders Plus  vs.  BMO Growth ETF

Energy Leaders Plus

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Leaders Plus are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of very weak technical and fundamental indicators, Energy Leaders may actually be approaching a critical reversion point that can send shares even higher in June 2024.

BMO Growth ETF

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Growth ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Growth is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Energy Leaders and BMO Growth

The main advantage of trading using opposite Energy Leaders and BMO Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Leaders position performs unexpectedly, BMO Growth 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 BMO Growth will offset losses from the drop in BMO Growth's long position.

The idea behind Energy Leaders Plus and BMO Growth ETF pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.