Correlation Between MegaShort and BMO Canadian

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

By analyzing existing cross correlation between MegaShort SP 500 and BMO Canadian Bank, you can compare the effects of market volatilities on MegaShort and BMO Canadian 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 MegaShort with a short position of BMO Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of MegaShort and BMO Canadian.

Diversification Opportunities for MegaShort and BMO Canadian

0.27

Correlation Coefficient

MegaShort  BMO Canadian

Modest diversification

The 3 months correlation between MegaShort and BMO is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding MegaShort SP 500 and BMO Canadian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian Bank and MegaShort 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 MegaShort SP 500 are associated (or correlated) with BMO Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian Bank has no effect on the direction of MegaShort i.e., MegaShort and BMO Canadian go up and down completely randomly.

Pair Corralation between MegaShort and BMO Canadian

Assuming the 90 days trading horizon MegaShort SP 500 is expected to under-perform the BMO Canadian. In addition to that, MegaShort is 16.08 times more volatile than BMO Canadian Bank. It trades about -0.28 of its total potential returns per unit of risk. BMO Canadian Bank is currently generating about 0.27 per unit of volatility. If you would invest  2,982  in BMO Canadian Bank on April 20, 2025 and sell it today you would earn a total of  62.00  from holding BMO Canadian Bank or generate 2.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.49%
Values	Daily Returns

MegaShort SP 500  vs.  BMO Canadian Bank

MegaShort SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days MegaShort SP 500 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 August 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

BMO Canadian Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MegaShort and BMO Canadian

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

The idea behind MegaShort SP 500 and BMO Canadian Bank 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.