Correlation Between BMO Covered and FT AlphaDEX

Can any of the company-specific risk be diversified away by investing in both BMO Covered and FT AlphaDEX 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 Covered and FT AlphaDEX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Covered Call and FT AlphaDEX Industrials, you can compare the effects of market volatilities on BMO Covered and FT AlphaDEX 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 Covered with a short position of FT AlphaDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and FT AlphaDEX.

Diversification Opportunities for BMO Covered and FT AlphaDEX

0.97

Correlation Coefficient

BMO Covered  FT AlphaDEX

Almost no diversification

The 3 months correlation between BMO and FHG is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and FT AlphaDEX Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT AlphaDEX Industrials and BMO Covered 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 Covered Call are associated (or correlated) with FT AlphaDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT AlphaDEX Industrials has no effect on the direction of BMO Covered i.e., BMO Covered and FT AlphaDEX go up and down completely randomly.

Pair Corralation between BMO Covered and FT AlphaDEX

Assuming the 90 days trading horizon BMO Covered Call is expected to generate 1.18 times more return on investment than FT AlphaDEX. However, BMO Covered is 1.18 times more volatile than FT AlphaDEX Industrials. It trades about -0.22 of its potential returns per unit of risk. FT AlphaDEX Industrials is currently generating about -0.3 per unit of risk. If you would invest  2,607  in BMO Covered Call on September 23, 2024 and sell it today you would lose (136.00) from holding BMO Covered Call or give up 5.22% of portfolio value over 90 days.

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

BMO Covered Call  vs.  FT AlphaDEX Industrials

BMO Covered Call

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward-looking signals, BMO Covered displayed solid returns over the last few months and may actually be approaching a breakup point.

FT AlphaDEX Industrials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FT AlphaDEX Industrials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, FT AlphaDEX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Covered and FT AlphaDEX

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

The idea behind BMO Covered Call and FT AlphaDEX Industrials 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.