Correlation Between BetaPro Crude and BMO Real

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

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

Diversification Opportunities for BetaPro Crude and BMO Real

0.04

Correlation Coefficient

BetaPro Crude  BMO Real

Significant diversification

The 3 months correlation between BetaPro and BMO is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro Crude Oil and BMO Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Real Return and BetaPro Crude 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 Crude Oil are associated (or correlated) with BMO Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Real Return has no effect on the direction of BetaPro Crude i.e., BetaPro Crude and BMO Real go up and down completely randomly.

Pair Corralation between BetaPro Crude and BMO Real

Assuming the 90 days trading horizon BetaPro Crude Oil is expected to generate 4.03 times more return on investment than BMO Real. However, BetaPro Crude is 4.03 times more volatile than BMO Real Return. It trades about 0.1 of its potential returns per unit of risk. BMO Real Return is currently generating about 0.17 per unit of risk. If you would invest  584.00  in BetaPro Crude Oil on December 1, 2024 and sell it today you would earn a total of  31.00  from holding BetaPro Crude Oil or generate 5.31% return on investment over 90 days.

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

BetaPro Crude Oil  vs.  BMO Real Return

BetaPro Crude Oil

Risk-Adjusted Performance

Very Weak

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

BMO Real Return

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Real Return are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Real 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 Crude and BMO Real

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

The idea behind BetaPro Crude Oil and BMO Real Return 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.