Correlation Between BMO Clean and First Trust

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

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

Diversification Opportunities for BMO Clean and First Trust

-0.02

Correlation Coefficient

BMO Clean  First Trust

Good diversification

The 3 months correlation between BMO and First is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding BMO Clean Energy and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and BMO Clean 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 BMO Clean Energy are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Nasdaq has no effect on the direction of BMO Clean i.e., BMO Clean and First Trust go up and down completely randomly.

Pair Corralation between BMO Clean and First Trust

Assuming the 90 days trading horizon BMO Clean Energy is expected to generate 0.62 times more return on investment than First Trust. However, BMO Clean Energy is 1.61 times less risky than First Trust. It trades about 0.0 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.12 per unit of risk. If you would invest  1,283  in BMO Clean Energy on December 26, 2024 and sell it today you would lose (7.00) from holding BMO Clean Energy or give up 0.55% of portfolio value over 90 days.

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

BMO Clean Energy  vs.  First Trust Nasdaq

BMO Clean Energy

Risk-Adjusted Performance

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 very healthy basic indicators, BMO Clean is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with BMO Clean and First Trust

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

The idea behind BMO Clean Energy and First Trust Nasdaq 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.