Correlation Between BetaPro NASDAQ and BMO Covered

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

By analyzing existing cross correlation between BetaPro NASDAQ 100 2x and BMO Covered Call, you can compare the effects of market volatilities on BetaPro NASDAQ and BMO Covered 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 NASDAQ with a short position of BMO Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro NASDAQ and BMO Covered.

Diversification Opportunities for BetaPro NASDAQ and BMO Covered

-0.85

Correlation Coefficient

BetaPro NASDAQ  BMO Covered

Pay attention - limited upside

The 3 months correlation between BetaPro and BMO is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro NASDAQ 100 2x and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call and BetaPro NASDAQ 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 NASDAQ 100 2x are associated (or correlated) with BMO Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of BetaPro NASDAQ i.e., BetaPro NASDAQ and BMO Covered go up and down completely randomly.

Pair Corralation between BetaPro NASDAQ and BMO Covered

Assuming the 90 days trading horizon BetaPro NASDAQ 100 2x is expected to generate 2.01 times more return on investment than BMO Covered. However, BetaPro NASDAQ is 2.01 times more volatile than BMO Covered Call. It trades about 0.09 of its potential returns per unit of risk. BMO Covered Call is currently generating about -0.07 per unit of risk. If you would invest  1,027  in BetaPro NASDAQ 100 2x on December 29, 2024 and sell it today you would earn a total of  137.00  from holding BetaPro NASDAQ 100 2x or generate 13.34% return on investment over 90 days.

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

BetaPro NASDAQ 100 2x  vs.  BMO Covered Call

BetaPro NASDAQ 100

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro NASDAQ 100 2x are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, BetaPro NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO Covered Call

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Covered Call has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, BMO Covered 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 NASDAQ and BMO Covered

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

The idea behind BetaPro NASDAQ 100 2x and BMO Covered Call 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.