Correlation Between BMO Equal and IShares SPTSX

Can any of the company-specific risk be diversified away by investing in both BMO Equal 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 Equal 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 Equal Weight and iShares SPTSX Capped, you can compare the effects of market volatilities on BMO Equal 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 Equal with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and IShares SPTSX.

Diversification Opportunities for BMO Equal and IShares SPTSX

0.97

Correlation Coefficient

BMO Equal  IShares SPTSX

Almost no diversification

The 3 months correlation between BMO and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight 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 Equal 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 Equal Weight 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 Equal i.e., BMO Equal and IShares SPTSX go up and down completely randomly.

Pair Corralation between BMO Equal and IShares SPTSX

Assuming the 90 days trading horizon BMO Equal Weight is expected to generate 0.96 times more return on investment than IShares SPTSX. However, BMO Equal Weight is 1.04 times less risky than IShares SPTSX. It trades about -0.05 of its potential returns per unit of risk. iShares SPTSX Capped is currently generating about -0.08 per unit of risk. If you would invest  2,020  in BMO Equal Weight on February 5, 2024 and sell it today you would lose (22.00) from holding BMO Equal Weight or give up 1.09% of portfolio value over 90 days.

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

BMO Equal Weight  vs.  iShares SPTSX Capped

BMO Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, BMO Equal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares SPTSX Capped

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SPTSX Capped has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Equal and IShares SPTSX

The main advantage of trading using opposite BMO Equal and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal 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.

The idea behind BMO Equal Weight and iShares SPTSX Capped 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.