Correlation Between BMO SP and Guardian Directed

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

Diversification Opportunities for BMO SP and Guardian Directed

0.97

Correlation Coefficient

BMO SP  Guardian Directed

Almost no diversification

The 3 months correlation between BMO and Guardian is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Guardian Directed Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian Directed Premium 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 Guardian Directed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guardian Directed Premium has no effect on the direction of BMO SP i.e., BMO SP and Guardian Directed go up and down completely randomly.

Pair Corralation between BMO SP and Guardian Directed

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 1.25 times more return on investment than Guardian Directed. However, BMO SP is 1.25 times more volatile than Guardian Directed Premium. It trades about 0.31 of its potential returns per unit of risk. Guardian Directed Premium is currently generating about 0.23 per unit of risk. If you would invest  8,110  in BMO SP 500 on September 5, 2024 and sell it today you would earn a total of  1,254  from holding BMO SP 500 or generate 15.46% return on investment over 90 days.

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

BMO SP 500  vs.  Guardian Directed Premium

BMO SP 500

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Guardian Directed Premium

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guardian Directed Premium are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Guardian Directed may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO SP and Guardian Directed

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

The idea behind BMO SP 500 and Guardian Directed Premium 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.