Correlation Between IShares SPTSX and BMO Preferred

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Can any of the company-specific risk be diversified away by investing in both IShares SPTSX and BMO Preferred 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 IShares SPTSX and BMO Preferred into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares SPTSX Canadian and BMO Preferred Share, you can compare the effects of market volatilities on IShares SPTSX and BMO Preferred 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 IShares SPTSX with a short position of BMO Preferred. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and BMO Preferred.

Diversification Opportunities for IShares SPTSX and BMO Preferred

ISharesBMODiversified AwayISharesBMODiversified Away100%
-0.24
  Correlation Coefficient

Very good diversification

The 3 months correlation between IShares and BMO is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Canadian and BMO Preferred Share in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Preferred Share and IShares SPTSX 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 iShares SPTSX Canadian are associated (or correlated) with BMO Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Preferred Share has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and BMO Preferred go up and down completely randomly.

Pair Corralation between IShares SPTSX and BMO Preferred

Assuming the 90 days trading horizon iShares SPTSX Canadian is expected to generate 0.39 times more return on investment than BMO Preferred. However, iShares SPTSX Canadian is 2.57 times less risky than BMO Preferred. It trades about 0.29 of its potential returns per unit of risk. BMO Preferred Share is currently generating about -0.02 per unit of risk. If you would invest  1,219  in iShares SPTSX Canadian on November 24, 2024 and sell it today you would earn a total of  63.00  from holding iShares SPTSX Canadian or generate 5.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

iShares SPTSX Canadian  vs.  BMO Preferred Share

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -5-4-3-2-10
JavaScript chart by amCharts 3.21.15CPD ZUP
       Timeline  
iShares SPTSX Canadian 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Canadian are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb12.112.212.312.412.512.612.712.812.9
BMO Preferred Share 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days BMO Preferred Share has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Preferred is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb21.421.621.82222.2

IShares SPTSX and BMO Preferred Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.79-0.53-0.27-0.07040.01620.140.40.660.921.18 12345
JavaScript chart by amCharts 3.21.15CPD ZUP
       Returns  

Pair Trading with IShares SPTSX and BMO Preferred

The main advantage of trading using opposite IShares SPTSX and BMO Preferred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SPTSX position performs unexpectedly, BMO Preferred 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 Preferred will offset losses from the drop in BMO Preferred's long position.
The idea behind iShares SPTSX Canadian and BMO Preferred Share 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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