Correlation Between IShares SPTSX and BMO SPTSX

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

By analyzing existing cross correlation between iShares SPTSX 60 and BMO SPTSX Capped, you can compare the effects of market volatilities on IShares SPTSX 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 IShares SPTSX with a short position of BMO SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and BMO SPTSX.

Diversification Opportunities for IShares SPTSX and BMO SPTSX

1.0

Correlation Coefficient

IShares SPTSX  BMO SPTSX

No risk reduction

The 3 months correlation between IShares and BMO is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX 60 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 IShares SPTSX 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 iShares SPTSX 60 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 IShares SPTSX i.e., IShares SPTSX and BMO SPTSX go up and down completely randomly.

Pair Corralation between IShares SPTSX and BMO SPTSX

Assuming the 90 days trading horizon IShares SPTSX is expected to generate 1.01 times less return on investment than BMO SPTSX. In addition to that, IShares SPTSX is 1.0 times more volatile than BMO SPTSX Capped. It trades about 0.12 of its total potential returns per unit of risk. BMO SPTSX Capped is currently generating about 0.12 per unit of volatility. If you would invest  2,549  in BMO SPTSX Capped on September 1, 2024 and sell it today you would earn a total of  895.00  from holding BMO SPTSX Capped or generate 35.11% return on investment over 90 days.

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

iShares SPTSX 60  vs.  BMO SPTSX Capped

iShares SPTSX 60

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX 60 are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX may actually be approaching a critical reversion point that can send shares even higher in December 2024.

BMO SPTSX Capped

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Capped are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SPTSX may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares SPTSX and BMO SPTSX

The main advantage of trading using opposite IShares SPTSX and BMO SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SPTSX 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 iShares SPTSX 60 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.