Correlation Between BetaPro SP and BMO Core

Can any of the company-specific risk be diversified away by investing in both BetaPro SP and BMO Core 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 Core 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 Core Plus, you can compare the effects of market volatilities on BetaPro SP and BMO Core 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 Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and BMO Core.

Diversification Opportunities for BetaPro SP and BMO Core

0.08

Correlation Coefficient

BetaPro SP  BMO Core

Significant diversification

The 3 months correlation between BetaPro and BMO is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP TSX and BMO Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Core Plus 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 Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Core Plus has no effect on the direction of BetaPro SP i.e., BetaPro SP and BMO Core go up and down completely randomly.

Pair Corralation between BetaPro SP and BMO Core

Assuming the 90 days trading horizon BetaPro SP TSX is expected to under-perform the BMO Core. In addition to that, BetaPro SP is 2.73 times more volatile than BMO Core Plus. It trades about -0.37 of its total potential returns per unit of risk. BMO Core Plus is currently generating about 0.08 per unit of volatility. If you would invest  2,793  in BMO Core Plus on September 2, 2024 and sell it today you would earn a total of  53.00  from holding BMO Core Plus or generate 1.9% return on investment over 90 days.

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

BetaPro SP TSX  vs.  BMO Core Plus

BetaPro SP TSX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BetaPro SP TSX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

BMO Core Plus

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Core Plus are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BetaPro SP and BMO Core

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

The idea behind BetaPro SP TSX and BMO Core Plus 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.