Correlation Between BMO SPTSX and Solar Alliance

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

Diversification Opportunities for BMO SPTSX and Solar Alliance

0.53

Correlation Coefficient

BMO SPTSX  Solar Alliance

Very weak diversification

The 3 months correlation between BMO and Solar is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy 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 Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and Solar Alliance go up and down completely randomly.

Pair Corralation between BMO SPTSX and Solar Alliance

Assuming the 90 days trading horizon BMO SPTSX Equal is expected to under-perform the Solar Alliance. But the etf apears to be less risky and, when comparing its historical volatility, BMO SPTSX Equal is 6.68 times less risky than Solar Alliance. The etf trades about -0.09 of its potential returns per unit of risk. The Solar Alliance Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Solar Alliance Energy on November 29, 2024 and sell it today you would lose (1.50) from holding Solar Alliance Energy or give up 37.5% of portfolio value over 90 days.

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

BMO SPTSX Equal  vs.  Solar Alliance Energy

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.

Solar Alliance Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with BMO SPTSX and Solar Alliance

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

The idea behind BMO SPTSX Equal and Solar Alliance Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.