Correlation Between BMO SP and Fidelity Value

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

By analyzing existing cross correlation between BMO SP 500 and Fidelity Value ETF, you can compare the effects of market volatilities on BMO SP and Fidelity Value 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 SP with a short position of Fidelity Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Fidelity Value.

Diversification Opportunities for BMO SP and Fidelity Value

0.7

Correlation Coefficient

BMO SP  Fidelity Value

Poor diversification

The 3 months correlation between BMO and Fidelity is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Fidelity Value ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Value ETF and BMO SP 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 SP 500 are associated (or correlated) with Fidelity Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Value ETF has no effect on the direction of BMO SP i.e., BMO SP and Fidelity Value go up and down completely randomly.

Pair Corralation between BMO SP and Fidelity Value

Assuming the 90 days trading horizon BMO SP 500 is expected to under-perform the Fidelity Value. In addition to that, BMO SP is 1.13 times more volatile than Fidelity Value ETF. It trades about -0.09 of its total potential returns per unit of risk. Fidelity Value ETF is currently generating about 0.02 per unit of volatility. If you would invest  2,011  in Fidelity Value ETF on December 21, 2024 and sell it today you would earn a total of  11.00  from holding Fidelity Value ETF or generate 0.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BMO SP 500  vs.  Fidelity Value ETF

BMO SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fidelity Value ETF

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Value ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Fidelity Value is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO SP and Fidelity Value

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

The idea behind BMO SP 500 and Fidelity Value ETF 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.