Correlation Between BMO SP and BetaPro SP

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

Diversification Opportunities for BMO SP and BetaPro SP

-0.98

Correlation Coefficient

BMO SP  BetaPro SP

Pay attention - limited upside

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

Pair Corralation between BMO SP and BetaPro SP

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 0.68 times more return on investment than BetaPro SP. However, BMO SP 500 is 1.48 times less risky than BetaPro SP. It trades about 0.28 of its potential returns per unit of risk. BetaPro SP TSX is currently generating about -0.3 per unit of risk. If you would invest  8,350  in BMO SP 500 on September 13, 2024 and sell it today you would earn a total of  1,080  from holding BMO SP 500 or generate 12.93% return on investment over 90 days.

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

BMO SP 500  vs.  BetaPro SP TSX

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 unfluctuating basic indicators, BMO SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BetaPro SP TSX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BetaPro SP TSX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with BMO SP and BetaPro SP

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

The idea behind BMO SP 500 and BetaPro SP TSX 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.