Correlation Between First Trust and BMO Long

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

By analyzing existing cross correlation between First Trust AlphaDEX and BMO Long Federal, you can compare the effects of market volatilities on First Trust and BMO Long 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 First Trust with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and BMO Long.

Diversification Opportunities for First Trust and BMO Long

-0.31

Correlation Coefficient

First Trust  BMO Long

Very good diversification

The 3 months correlation between First and BMO is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding First Trust AlphaDEX and BMO Long Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Federal and First Trust 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 First Trust AlphaDEX are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Federal has no effect on the direction of First Trust i.e., First Trust and BMO Long go up and down completely randomly.

Pair Corralation between First Trust and BMO Long

Assuming the 90 days trading horizon First Trust AlphaDEX is expected to under-perform the BMO Long. In addition to that, First Trust is 1.58 times more volatile than BMO Long Federal. It trades about -0.09 of its total potential returns per unit of risk. BMO Long Federal is currently generating about 0.03 per unit of volatility. If you would invest  1,291  in BMO Long Federal on December 28, 2024 and sell it today you would earn a total of  15.00  from holding BMO Long Federal or generate 1.16% return on investment over 90 days.

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

First Trust AlphaDEX  vs.  BMO Long Federal

First Trust AlphaDEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust AlphaDEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

BMO Long Federal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Federal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, BMO Long is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and BMO Long

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

The idea behind First Trust AlphaDEX and BMO Long Federal 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.