Correlation Between Global X and BMO SPTSX

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

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

Diversification Opportunities for Global X and BMO SPTSX

0.99

Correlation Coefficient

Global X  BMO SPTSX

No risk reduction

The 3 months correlation between Global and BMO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Global X SPTSX and BMO SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SPTSX Capped and Global X 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 Global X SPTSX are associated (or correlated) with BMO SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SPTSX Capped has no effect on the direction of Global X i.e., Global X and BMO SPTSX go up and down completely randomly.

Pair Corralation between Global X and BMO SPTSX

Assuming the 90 days trading horizon Global X SPTSX is expected to generate 1.02 times more return on investment than BMO SPTSX. However, Global X is 1.02 times more volatile than BMO SPTSX Capped. It trades about 0.0 of its potential returns per unit of risk. BMO SPTSX Capped is currently generating about -0.03 per unit of risk. If you would invest  6,678  in Global X SPTSX on November 29, 2024 and sell it today you would lose (16.00) from holding Global X SPTSX or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Global X SPTSX  vs.  BMO SPTSX Capped

Global X SPTSX

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global X SPTSX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Global X is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO SPTSX Capped

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO SPTSX Capped has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Global X and BMO SPTSX

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

The idea behind Global X SPTSX and BMO SPTSX Capped 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.