Correlation Between BMO SP and Franklin Large

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

Diversification Opportunities for BMO SP and Franklin Large

0.98

Correlation Coefficient

BMO SP  Franklin Large

Almost no diversification

The 3 months correlation between BMO and Franklin is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Franklin Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Large Cap 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 Franklin Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Large Cap has no effect on the direction of BMO SP i.e., BMO SP and Franklin Large go up and down completely randomly.

Pair Corralation between BMO SP and Franklin Large

Assuming the 90 days trading horizon BMO SP 500 is expected to under-perform the Franklin Large. But the etf apears to be less risky and, when comparing its historical volatility, BMO SP 500 is 1.01 times less risky than Franklin Large. The etf trades about -0.09 of its potential returns per unit of risk. The Franklin Large Cap is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,959  in Franklin Large Cap on December 27, 2024 and sell it today you would lose (213.00) from holding Franklin Large Cap or give up 4.3% of portfolio value over 90 days.

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

BMO SP 500  vs.  Franklin Large Cap

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.

Franklin Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Large Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Franklin Large 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 Franklin Large

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

The idea behind BMO SP 500 and Franklin Large Cap 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.