Correlation Between BMO Covered and Global X

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

Diversification Opportunities for BMO Covered and Global X

-0.16

Correlation Coefficient

BMO Covered  Global X

Good diversification

The 3 months correlation between BMO and Global is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and Global X SPTSX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X SPTSX 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X SPTSX has no effect on the direction of BMO Covered i.e., BMO Covered and Global X go up and down completely randomly.

Pair Corralation between BMO Covered and Global X

Assuming the 90 days trading horizon BMO Covered Call is expected to under-perform the Global X. In addition to that, BMO Covered is 1.08 times more volatile than Global X SPTSX. It trades about -0.39 of its total potential returns per unit of risk. Global X SPTSX is currently generating about -0.11 per unit of volatility. If you would invest  8,475  in Global X SPTSX on September 23, 2024 and sell it today you would lose (103.00) from holding Global X SPTSX or give up 1.22% of portfolio value over 90 days.

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

BMO Covered Call  vs.  Global X SPTSX

BMO Covered Call

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Covered Call has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Covered is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X SPTSX

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global X SPTSX are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Covered and Global X

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

The idea behind BMO Covered Call and Global X SPTSX 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.