Correlation Between BMO SPTSX and BMO Aggregate

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

Diversification Opportunities for BMO SPTSX and BMO Aggregate

-0.52

Correlation Coefficient

BMO SPTSX  BMO Aggregate

Excellent diversification

The 3 months correlation between BMO and BMO is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding BMO SPTSX Equal and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond 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 BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of BMO SPTSX i.e., BMO SPTSX and BMO Aggregate go up and down completely randomly.

Pair Corralation between BMO SPTSX and BMO Aggregate

Assuming the 90 days trading horizon BMO SPTSX Equal is expected to generate 5.24 times more return on investment than BMO Aggregate. However, BMO SPTSX is 5.24 times more volatile than BMO Aggregate Bond. It trades about 0.16 of its potential returns per unit of risk. BMO Aggregate Bond is currently generating about -0.05 per unit of risk. If you would invest  6,173  in BMO SPTSX Equal on September 3, 2024 and sell it today you would earn a total of  1,104  from holding BMO SPTSX Equal or generate 17.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BMO SPTSX Equal  vs.  BMO Aggregate Bond

BMO SPTSX Equal

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SPTSX Equal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BMO SPTSX and BMO Aggregate

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

The idea behind BMO SPTSX Equal and BMO Aggregate Bond 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.