Correlation Between BMO SPTSX and Global X

Can any of the company-specific risk be diversified away by investing in both BMO SPTSX 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 SPTSX 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 SPTSX Equal and Global X Enhanced, you can compare the effects of market volatilities on BMO SPTSX 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 SPTSX with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SPTSX and Global X.

Diversification Opportunities for BMO SPTSX and Global X

0.0

Correlation Coefficient

BMO SPTSX  Global X

Pay attention - limited upside

The 3 months correlation between BMO and Global is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and Global X Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Enhanced 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 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 Enhanced has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Global X go up and down completely randomly.

Pair Corralation between BMO SPTSX and Global X

Assuming the 90 days trading horizon BMO SPTSX is expected to generate 32.05 times less return on investment than Global X. In addition to that, BMO SPTSX is 1.03 times more volatile than Global X Enhanced. It trades about 0.01 of its total potential returns per unit of risk. Global X Enhanced is currently generating about 0.27 per unit of volatility. If you would invest  2,541  in Global X Enhanced on December 28, 2024 and sell it today you would earn a total of  766.00  from holding Global X Enhanced or generate 30.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BMO SPTSX Equal  vs.  Global X Enhanced

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 basic indicators, BMO SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X Enhanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Enhanced are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SPTSX and Global X

The main advantage of trading using opposite BMO SPTSX and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SPTSX 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 SPTSX Equal and Global X Enhanced 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.