Correlation Between IShares NASDAQ and BMO SPTSX

Can any of the company-specific risk be diversified away by investing in both IShares NASDAQ 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 NASDAQ 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 NASDAQ 100 and BMO SPTSX Equal, you can compare the effects of market volatilities on IShares NASDAQ 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 NASDAQ with a short position of BMO SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares NASDAQ and BMO SPTSX.

Diversification Opportunities for IShares NASDAQ and BMO SPTSX

0.87

Correlation Coefficient

IShares NASDAQ  BMO SPTSX

Very poor diversification

The 3 months correlation between IShares and BMO is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares NASDAQ 100 and BMO SPTSX Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SPTSX Equal and IShares 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 iShares NASDAQ 100 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 Equal has no effect on the direction of IShares NASDAQ i.e., IShares NASDAQ and BMO SPTSX go up and down completely randomly.

Pair Corralation between IShares NASDAQ and BMO SPTSX

Assuming the 90 days trading horizon iShares NASDAQ 100 is expected to under-perform the BMO SPTSX. In addition to that, IShares NASDAQ is 1.9 times more volatile than BMO SPTSX Equal. It trades about -0.1 of its total potential returns per unit of risk. BMO SPTSX Equal is currently generating about -0.1 per unit of volatility. If you would invest  4,184  in BMO SPTSX Equal on December 29, 2024 and sell it today you would lose (190.00) from holding BMO SPTSX Equal or give up 4.54% of portfolio value over 90 days.

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

iShares NASDAQ 100  vs.  BMO SPTSX Equal

iShares NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares NASDAQ 100 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.

BMO SPTSX Equal

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO SPTSX Equal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, 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 IShares NASDAQ and BMO SPTSX

The main advantage of trading using opposite IShares NASDAQ and BMO SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares NASDAQ 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 NASDAQ 100 and BMO SPTSX Equal 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.