Correlation Between BMO Long and SHP ETF

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

By analyzing existing cross correlation between BMO Long Federal and SHP ETF Trust, you can compare the effects of market volatilities on BMO Long and SHP ETF 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 Long with a short position of SHP ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and SHP ETF.

Diversification Opportunities for BMO Long and SHP ETF

0.42

Correlation Coefficient

BMO Long  SHP ETF

Very weak diversification

The 3 months correlation between BMO and SHP is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Federal and SHP ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHP ETF Trust and BMO Long 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 Long Federal are associated (or correlated) with SHP ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHP ETF Trust has no effect on the direction of BMO Long i.e., BMO Long and SHP ETF go up and down completely randomly.

Pair Corralation between BMO Long and SHP ETF

Assuming the 90 days trading horizon BMO Long Federal is expected to under-perform the SHP ETF. But the etf apears to be less risky and, when comparing its historical volatility, BMO Long Federal is 1.22 times less risky than SHP ETF. The etf trades about -0.3 of its potential returns per unit of risk. The SHP ETF Trust is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,894  in SHP ETF Trust on October 9, 2024 and sell it today you would lose (32.00) from holding SHP ETF Trust or give up 1.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

BMO Long Federal  vs.  SHP ETF Trust

BMO Long Federal

Risk-Adjusted Performance

0 of 100

Very Weak

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

SHP ETF Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SHP ETF Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, SHP ETF is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BMO Long and SHP ETF

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

The idea behind BMO Long Federal and SHP ETF Trust 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.