Correlation Between BMO SP and Guardian

Can any of the company-specific risk be diversified away by investing in both BMO SP and Guardian 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 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 i3 Quality, you can compare the effects of market volatilities on BMO SP and Guardian 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Guardian.

Diversification Opportunities for BMO SP and Guardian

0.69

Correlation Coefficient

BMO SP  Guardian

Poor diversification

The 3 months correlation between BMO and Guardian is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Guardian i3 Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian i3 Quality 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guardian i3 Quality has no effect on the direction of BMO SP i.e., BMO SP and Guardian go up and down completely randomly.

Pair Corralation between BMO SP and Guardian

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 0.66 times more return on investment than Guardian. However, BMO SP 500 is 1.51 times less risky than Guardian. It trades about 0.18 of its potential returns per unit of risk. Guardian i3 Quality is currently generating about 0.12 per unit of risk. If you would invest  6,888  in BMO SP 500 on September 14, 2024 and sell it today you would earn a total of  2,542  from holding BMO SP 500 or generate 36.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

BMO SP 500  vs.  Guardian i3 Quality

BMO SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, BMO SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guardian i3 Quality

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guardian i3 Quality are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Guardian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO SP and Guardian

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

The idea behind BMO SP 500 and Guardian i3 Quality 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..