Correlation Between European Residential and BMO SPTSX

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

By analyzing existing cross correlation between European Residential Real and BMO SPTSX Equal, you can compare the effects of market volatilities on European Residential and BMO 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 European Residential with a short position of BMO SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and BMO SPTSX.

Diversification Opportunities for European Residential and BMO SPTSX

0.88

Correlation Coefficient

European Residential  BMO SPTSX

Very poor diversification

The 3 months correlation between European and BMO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and BMO SPTSX Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SPTSX Equal and European Residential 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 European Residential Real are associated (or correlated) with BMO SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SPTSX Equal has no effect on the direction of European Residential i.e., European Residential and BMO SPTSX go up and down completely randomly.

Pair Corralation between European Residential and BMO SPTSX

Assuming the 90 days trading horizon European Residential Real is expected to generate 3.13 times more return on investment than BMO SPTSX. However, European Residential is 3.13 times more volatile than BMO SPTSX Equal. It trades about 0.24 of its potential returns per unit of risk. BMO SPTSX Equal is currently generating about 0.24 per unit of risk. If you would invest  268.00  in European Residential Real on September 3, 2024 and sell it today you would earn a total of  112.00  from holding European Residential Real or generate 41.79% return on investment over 90 days.

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

European Residential Real  vs.  BMO SPTSX Equal

European Residential Real

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

BMO SPTSX Equal

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Equal are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, BMO SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with European Residential and BMO SPTSX

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

The idea behind European Residential Real and BMO SPTSX Equal 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.