Correlation Between BMO SPTSX and First Asset

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

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

Diversification Opportunities for BMO SPTSX and First Asset

0.97

Correlation Coefficient

BMO SPTSX  First Asset

Almost no diversification

The 3 months correlation between BMO and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped and First Asset Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Asset Morningstar and BMO 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 BMO SPTSX Capped are associated (or correlated) with First Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Asset Morningstar has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and First Asset go up and down completely randomly.

Pair Corralation between BMO SPTSX and First Asset

Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.33 times less return on investment than First Asset. But when comparing it to its historical volatility, BMO SPTSX Capped is 1.68 times less risky than First Asset. It trades about 0.26 of its potential returns per unit of risk. First Asset Morningstar is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,385  in First Asset Morningstar on September 14, 2024 and sell it today you would earn a total of  249.00  from holding First Asset Morningstar or generate 10.44% return on investment over 90 days.

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

BMO SPTSX Capped  vs.  First Asset Morningstar

BMO SPTSX Capped

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Capped are ranked lower than 20 (%) 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 January 2025.

First Asset Morningstar

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Asset Morningstar are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, First Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO SPTSX and First Asset

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

The idea behind BMO SPTSX Capped and First Asset Morningstar 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.