Correlation Between Solar Alliance and BMO Clean

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

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

Diversification Opportunities for Solar Alliance and BMO Clean

0.75

Correlation Coefficient

Solar Alliance  BMO Clean

Poor diversification

The 3 months correlation between Solar and BMO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and BMO Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Clean Energy and Solar Alliance 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 Solar Alliance Energy are associated (or correlated) with BMO Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Clean Energy has no effect on the direction of Solar Alliance i.e., Solar Alliance and BMO Clean go up and down completely randomly.

Pair Corralation between Solar Alliance and BMO Clean

Assuming the 90 days trading horizon Solar Alliance Energy is expected to generate 9.17 times more return on investment than BMO Clean. However, Solar Alliance is 9.17 times more volatile than BMO Clean Energy. It trades about 0.01 of its potential returns per unit of risk. BMO Clean Energy is currently generating about -0.11 per unit of risk. If you would invest  5.00  in Solar Alliance Energy on October 20, 2024 and sell it today you would lose (2.00) from holding Solar Alliance Energy or give up 40.0% of portfolio value over 90 days.

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

Solar Alliance Energy  vs.  BMO Clean Energy

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

BMO Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Solar Alliance and BMO Clean

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

The idea behind Solar Alliance Energy and BMO Clean Energy 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.