Correlation Between BMO SP and Mackenzie Large

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

Diversification Opportunities for BMO SP and Mackenzie Large

1.0

Correlation Coefficient

BMO SP  Mackenzie Large

No risk reduction

The 3 months correlation between BMO and Mackenzie is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Mackenzie Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mackenzie Large 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 Mackenzie Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mackenzie Large Cap has no effect on the direction of BMO SP i.e., BMO SP and Mackenzie Large go up and down completely randomly.

Pair Corralation between BMO SP and Mackenzie Large

Assuming the 90 days trading horizon BMO SP is expected to generate 1.04 times less return on investment than Mackenzie Large. But when comparing it to its historical volatility, BMO SP 500 is 1.04 times less risky than Mackenzie Large. It trades about 0.18 of its potential returns per unit of risk. Mackenzie Large Cap is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  17,747  in Mackenzie Large Cap on September 4, 2024 and sell it today you would earn a total of  6,792  from holding Mackenzie Large Cap or generate 38.27% return on investment over 90 days.

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

BMO SP 500  vs.  Mackenzie Large Cap

BMO SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Mackenzie Large Cap

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mackenzie Large Cap are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Mackenzie Large displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO SP and Mackenzie Large

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

The idea behind BMO SP 500 and Mackenzie Large Cap 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.