Correlation Between BMO SP and Ninepoint Energy

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

Diversification Opportunities for BMO SP and Ninepoint Energy

0.55

Correlation Coefficient

BMO SP  Ninepoint Energy

Very weak diversification

The 3 months correlation between BMO and Ninepoint is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Ninepoint Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ninepoint Energy Income 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 Ninepoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ninepoint Energy Income has no effect on the direction of BMO SP i.e., BMO SP and Ninepoint Energy go up and down completely randomly.

Pair Corralation between BMO SP and Ninepoint Energy

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 0.72 times more return on investment than Ninepoint Energy. However, BMO SP 500 is 1.39 times less risky than Ninepoint Energy. It trades about 0.36 of its potential returns per unit of risk. Ninepoint Energy Income is currently generating about 0.13 per unit of risk. If you would invest  8,684  in BMO SP 500 on September 4, 2024 and sell it today you would earn a total of  608.00  from holding BMO SP 500 or generate 7.0% return on investment over 90 days.

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

BMO SP 500  vs.  Ninepoint Energy Income

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.

Ninepoint Energy Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ninepoint Energy Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ninepoint Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BMO SP and Ninepoint Energy

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

The idea behind BMO SP 500 and Ninepoint Energy Income 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.