Correlation Between BMO SPTSX and Vanguard Total

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

Diversification Opportunities for BMO SPTSX and Vanguard Total

0.68

Correlation Coefficient

BMO SPTSX  Vanguard Total

Poor diversification

The 3 months correlation between BMO and Vanguard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Capped and Vanguard Total Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Market 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 Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Market has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Vanguard Total go up and down completely randomly.

Pair Corralation between BMO SPTSX and Vanguard Total

Assuming the 90 days trading horizon BMO SPTSX Capped is expected to generate 0.84 times more return on investment than Vanguard Total. However, BMO SPTSX Capped is 1.19 times less risky than Vanguard Total. It trades about 0.03 of its potential returns per unit of risk. Vanguard Total Market is currently generating about -0.1 per unit of risk. If you would invest  3,267  in BMO SPTSX Capped on December 30, 2024 and sell it today you would earn a total of  41.00  from holding BMO SPTSX Capped or generate 1.25% return on investment over 90 days.

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

BMO SPTSX Capped  vs.  Vanguard Total Market

BMO SPTSX Capped

Risk-Adjusted Performance

Weak

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

Vanguard Total Market

Risk-Adjusted Performance

Very Weak

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

Pair Trading with BMO SPTSX and Vanguard Total

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

The idea behind BMO SPTSX Capped and Vanguard Total Market 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.