Correlation Between BMO SPTSX and Hamilton Canadian

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

Diversification Opportunities for BMO SPTSX and Hamilton Canadian

0.88

Correlation Coefficient

BMO SPTSX  Hamilton Canadian

Very poor diversification

The 3 months correlation between BMO and Hamilton is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and Hamilton Canadian Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton Canadian 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 Hamilton Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton Canadian has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Hamilton Canadian go up and down completely randomly.

Pair Corralation between BMO SPTSX and Hamilton Canadian

Assuming the 90 days trading horizon BMO SPTSX Equal is expected to under-perform the Hamilton Canadian. But the etf apears to be less risky and, when comparing its historical volatility, BMO SPTSX Equal is 1.03 times less risky than Hamilton Canadian. The etf trades about -0.12 of its potential returns per unit of risk. The Hamilton Canadian Financials is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,456  in Hamilton Canadian Financials on December 2, 2024 and sell it today you would lose (16.00) from holding Hamilton Canadian Financials or give up 1.1% of portfolio value over 90 days.

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

BMO SPTSX Equal  vs.  Hamilton Canadian Financials

BMO SPTSX Equal

Risk-Adjusted Performance

Very Weak

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

Hamilton Canadian

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hamilton Canadian Financials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Hamilton Canadian 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 Hamilton Canadian

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

The idea behind BMO SPTSX Equal and Hamilton Canadian Financials 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.