Correlation Between BMO SP and Manulife Multifactor

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

Diversification Opportunities for BMO SP and Manulife Multifactor

0.11

Correlation Coefficient

BMO SP  Manulife Multifactor

Average diversification

The 3 months correlation between BMO and Manulife is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Manulife Multifactor Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Multifactor 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 Manulife Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Multifactor has no effect on the direction of BMO SP i.e., BMO SP and Manulife Multifactor go up and down completely randomly.

Pair Corralation between BMO SP and Manulife Multifactor

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 0.55 times more return on investment than Manulife Multifactor. However, BMO SP 500 is 1.81 times less risky than Manulife Multifactor. It trades about -0.09 of its potential returns per unit of risk. Manulife Multifactor Small is currently generating about -0.13 per unit of risk. If you would invest  9,375  in BMO SP 500 on December 22, 2024 and sell it today you would lose (468.00) from holding BMO SP 500 or give up 4.99% of portfolio value over 90 days.

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

BMO SP 500  vs.  Manulife Multifactor Small

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.

Manulife Multifactor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Manulife Multifactor Small 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 basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with BMO SP and Manulife Multifactor

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

The idea behind BMO SP 500 and Manulife Multifactor Small 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.