Correlation Between SPTSX Dividend and BMO Ultra

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

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

Diversification Opportunities for SPTSX Dividend and BMO Ultra

-0.52

Correlation Coefficient

SPTSX Dividend  BMO Ultra

Excellent diversification

The 3 months correlation between SPTSX and BMO is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and BMO Ultra Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Ultra Short and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with BMO Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Ultra Short has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and BMO Ultra go up and down completely randomly.

Pair Corralation between SPTSX Dividend and BMO Ultra

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to under-perform the BMO Ultra. In addition to that, SPTSX Dividend is 19.01 times more volatile than BMO Ultra Short Term. It trades about -0.02 of its total potential returns per unit of risk. BMO Ultra Short Term is currently generating about 0.46 per unit of volatility. If you would invest  4,855  in BMO Ultra Short Term on December 30, 2024 and sell it today you would earn a total of  43.00  from holding BMO Ultra Short Term or generate 0.89% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  BMO Ultra Short Term

Pair Trading with SPTSX Dividend and BMO Ultra

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

The idea behind SPTSX Dividend Aristocrats and BMO Ultra Short Term 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.