Correlation Between BMO SP and Purpose Gold

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

Diversification Opportunities for BMO SP and Purpose Gold

-0.54

Correlation Coefficient

BMO SP  Purpose Gold

Excellent diversification

The 3 months correlation between BMO and Purpose is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Purpose Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purpose Gold Bullion 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 Purpose Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purpose Gold Bullion has no effect on the direction of BMO SP i.e., BMO SP and Purpose Gold go up and down completely randomly.

Pair Corralation between BMO SP and Purpose Gold

Assuming the 90 days trading horizon BMO SP 500 is expected to under-perform the Purpose Gold. In addition to that, BMO SP is 1.1 times more volatile than Purpose Gold Bullion. It trades about -0.09 of its total potential returns per unit of risk. Purpose Gold Bullion is currently generating about 0.3 per unit of volatility. If you would invest  4,458  in Purpose Gold Bullion on December 30, 2024 and sell it today you would earn a total of  783.00  from holding Purpose Gold Bullion or generate 17.56% return on investment over 90 days.

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

BMO SP 500  vs.  Purpose Gold Bullion

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.

Purpose Gold Bullion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Purpose Gold Bullion are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Purpose Gold sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SP and Purpose Gold

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

The idea behind BMO SP 500 and Purpose Gold Bullion 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.