Correlation Between BMO SPTSX and Brompton European

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

Diversification Opportunities for BMO SPTSX and Brompton European

-0.11

Correlation Coefficient

BMO SPTSX  Brompton European

Good diversification

The 3 months correlation between BMO and Brompton is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and Brompton European Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton European 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 Brompton European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton European has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Brompton European go up and down completely randomly.

Pair Corralation between BMO SPTSX and Brompton European

Assuming the 90 days trading horizon BMO SPTSX Equal is expected to under-perform the Brompton European. In addition to that, BMO SPTSX is 1.68 times more volatile than Brompton European Dividend. It trades about -0.09 of its total potential returns per unit of risk. Brompton European Dividend is currently generating about 0.1 per unit of volatility. If you would invest  1,060  in Brompton European Dividend on November 29, 2024 and sell it today you would earn a total of  67.00  from holding Brompton European Dividend or generate 6.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

BMO SPTSX Equal  vs.  Brompton European Dividend

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 latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Brompton European

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton European may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with BMO SPTSX and Brompton European

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

The idea behind BMO SPTSX Equal and Brompton European Dividend 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.