Correlation Between IShares SPTSX and BMO Put

Can any of the company-specific risk be diversified away by investing in both IShares SPTSX and BMO Put 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 Put 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 Put Write, you can compare the effects of market volatilities on IShares SPTSX and BMO Put 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 Put. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and BMO Put.

Diversification Opportunities for IShares SPTSX and BMO Put

0.53

Correlation Coefficient

IShares SPTSX  BMO Put

Very weak diversification

The 3 months correlation between IShares and BMO is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX 60 and BMO Put Write in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Put Write 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 Put. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Put Write has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and BMO Put go up and down completely randomly.

Pair Corralation between IShares SPTSX and BMO Put

Assuming the 90 days trading horizon iShares SPTSX 60 is expected to generate 1.38 times more return on investment than BMO Put. However, IShares SPTSX is 1.38 times more volatile than BMO Put Write. It trades about 0.03 of its potential returns per unit of risk. BMO Put Write is currently generating about -0.03 per unit of risk. If you would invest  3,703  in iShares SPTSX 60 on December 29, 2024 and sell it today you would earn a total of  52.00  from holding iShares SPTSX 60 or generate 1.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

iShares SPTSX 60  vs.  BMO Put Write

iShares SPTSX 60

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX 60 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Put Write

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares SPTSX and BMO Put

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

The idea behind iShares SPTSX 60 and BMO Put Write 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.