Correlation Between Dow Jones and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both Dow Jones and BMO MSCI 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 Dow Jones and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and BMO MSCI EAFE, you can compare the effects of market volatilities on Dow Jones and BMO MSCI 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 Dow Jones with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and BMO MSCI.
Diversification Opportunities for Dow Jones and BMO MSCI
Very good diversification
The 3 months correlation between Dow and BMO is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of Dow Jones i.e., Dow Jones and BMO MSCI go up and down completely randomly.
Pair Corralation between Dow Jones and BMO MSCI
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.06 times more return on investment than BMO MSCI. However, Dow Jones is 1.06 times more volatile than BMO MSCI EAFE. It trades about 0.09 of its potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.07 per unit of risk. If you would invest 3,351,765 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,139,300 from holding Dow Jones Industrial or generate 33.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Dow Jones Industrial vs. BMO MSCI EAFE
Performance |
| Timeline |
Dow Jones and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
BMO MSCI EAFE
Pair trading matchups for BMO MSCI
Pair Trading with Dow Jones and BMO MSCI
The main advantage of trading using opposite Dow Jones and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, BMO MSCI 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 MSCI will offset losses from the drop in BMO MSCI's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| BMO MSCI vs. Vanguard FTSE Emerging | BMO MSCI vs. Vanguard FTSE Developed | BMO MSCI vs. Vanguard Total Market | BMO MSCI vs. Vanguard Canadian Aggregate |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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