Correlation Between BMO Canadian and Global X

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

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

Diversification Opportunities for BMO Canadian and Global X

0.8

Correlation Coefficient

BMO Canadian  Global X

Very poor diversification

The 3 months correlation between BMO and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian Dividend and Global X SPTSX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X SPTSX and BMO Canadian 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 Canadian Dividend are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X SPTSX has no effect on the direction of BMO Canadian i.e., BMO Canadian and Global X go up and down completely randomly.

Pair Corralation between BMO Canadian and Global X

Assuming the 90 days trading horizon BMO Canadian Dividend is expected to under-perform the Global X. But the etf apears to be less risky and, when comparing its historical volatility, BMO Canadian Dividend is 1.13 times less risky than Global X. The etf trades about -0.4 of its potential returns per unit of risk. The Global X SPTSX is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  8,475  in Global X SPTSX on September 23, 2024 and sell it today you would lose (103.00) from holding Global X SPTSX or give up 1.22% of portfolio value over 90 days.

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

BMO Canadian Dividend  vs.  Global X SPTSX

BMO Canadian Dividend

Risk-Adjusted Performance

2 of 100

Weak

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

Global X SPTSX

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X SPTSX are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Canadian and Global X

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

The idea behind BMO Canadian Dividend and Global X SPTSX 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 Transaction History module to view history of all your transactions and understand their impact on performance.