Correlation Between BMO SP and Hamilton MidSmall

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

Diversification Opportunities for BMO SP and Hamilton MidSmall

0.71

Correlation Coefficient

BMO SP  Hamilton MidSmall

Poor diversification

The 3 months correlation between BMO and Hamilton is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Hamilton MidSmall Cap Financia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton MidSmall 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 Hamilton MidSmall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton MidSmall Cap has no effect on the direction of BMO SP i.e., BMO SP and Hamilton MidSmall go up and down completely randomly.

Pair Corralation between BMO SP and Hamilton MidSmall

Assuming the 90 days trading horizon BMO SP is expected to generate 1.17 times less return on investment than Hamilton MidSmall. But when comparing it to its historical volatility, BMO SP 500 is 1.63 times less risky than Hamilton MidSmall. It trades about 0.15 of its potential returns per unit of risk. Hamilton MidSmall Cap Financials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,793  in Hamilton MidSmall Cap Financials on October 12, 2024 and sell it today you would earn a total of  734.00  from holding Hamilton MidSmall Cap Financials or generate 26.28% 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.  Hamilton MidSmall Cap Financia

BMO SP 500

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 10 (%) 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 February 2025.

Hamilton MidSmall Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hamilton MidSmall Cap Financials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hamilton MidSmall is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BMO SP and Hamilton MidSmall

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

The idea behind BMO SP 500 and Hamilton MidSmall Cap Financials 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.