Correlation Between BetaPro SP and BMO NASDAQ

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

By analyzing existing cross correlation between BetaPro SP TSX and BMO NASDAQ 100, you can compare the effects of market volatilities on BetaPro SP and BMO NASDAQ 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 BetaPro SP with a short position of BMO NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and BMO NASDAQ.

Diversification Opportunities for BetaPro SP and BMO NASDAQ

-0.46

Correlation Coefficient

BetaPro SP  BMO NASDAQ

Very good diversification

The 3 months correlation between BetaPro and BMO is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP TSX and BMO NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO NASDAQ 100 and BetaPro SP 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 BetaPro SP TSX are associated (or correlated) with BMO NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO NASDAQ 100 has no effect on the direction of BetaPro SP i.e., BetaPro SP and BMO NASDAQ go up and down completely randomly.

Pair Corralation between BetaPro SP and BMO NASDAQ

Assuming the 90 days trading horizon BetaPro SP is expected to generate 1.8 times less return on investment than BMO NASDAQ. In addition to that, BetaPro SP is 2.76 times more volatile than BMO NASDAQ 100. It trades about 0.03 of its total potential returns per unit of risk. BMO NASDAQ 100 is currently generating about 0.13 per unit of volatility. If you would invest  5,284  in BMO NASDAQ 100 on October 23, 2024 and sell it today you would earn a total of  4,839  from holding BMO NASDAQ 100 or generate 91.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

BetaPro SP TSX  vs.  BMO NASDAQ 100

BetaPro SP TSX

Risk-Adjusted Performance

1 of 100

Weak

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

BMO NASDAQ 100

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO NASDAQ may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BetaPro SP and BMO NASDAQ

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

The idea behind BetaPro SP TSX and BMO NASDAQ 100 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.