Correlation Between BMO SPTSX and IShares Equal

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

By analyzing existing cross correlation between BMO SPTSX Equal and iShares Equal Weight, you can compare the effects of market volatilities on BMO SPTSX and IShares Equal 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 IShares Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and IShares Equal.

Diversification Opportunities for BMO SPTSX and IShares Equal

0.77

Correlation Coefficient

BMO SPTSX  IShares Equal

Poor diversification

The 3 months correlation between BMO and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and iShares Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equal Weight 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 Equal are associated (or correlated) with IShares Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equal Weight has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and IShares Equal go up and down completely randomly.

Pair Corralation between BMO SPTSX and IShares Equal

Assuming the 90 days trading horizon BMO SPTSX is expected to generate 1.23 times less return on investment than IShares Equal. But when comparing it to its historical volatility, BMO SPTSX Equal is 1.28 times less risky than IShares Equal. It trades about 0.43 of its potential returns per unit of risk. iShares Equal Weight is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  1,826  in iShares Equal Weight on September 2, 2024 and sell it today you would earn a total of  290.00  from holding iShares Equal Weight or generate 15.88% return on investment over 90 days.

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

BMO SPTSX Equal  vs.  iShares Equal Weight

BMO SPTSX Equal

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Equal are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, BMO SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Equal Weight

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equal Weight are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Equal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SPTSX and IShares Equal

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

The idea behind BMO SPTSX Equal and iShares Equal Weight 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.