Correlation Between IShares MSCI and BMO Long
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and BMO Long 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 IShares MSCI and BMO Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and BMO Long Federal, you can compare the effects of market volatilities on IShares MSCI and BMO Long 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 IShares MSCI with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and BMO Long.
Diversification Opportunities for IShares MSCI and BMO Long
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and BMO is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and BMO Long Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Federal and IShares MSCI 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 iShares MSCI EAFE are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Federal has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO Long go up and down completely randomly.
Pair Corralation between IShares MSCI and BMO Long
Given the investment horizon of 90 days iShares MSCI EAFE is expected to under-perform the BMO Long. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI EAFE is 1.47 times less risky than BMO Long. The etf trades about -0.2 of its potential returns per unit of risk. The BMO Long Federal is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,295 in BMO Long Federal on August 27, 2024 and sell it today you would earn a total of 13.00 from holding BMO Long Federal or generate 1.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI EAFE vs. BMO Long Federal
Performance |
| Timeline |
| iShares MSCI EAFE |
| BMO Long Federal |
IShares MSCI and BMO Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and BMO Long
The main advantage of trading using opposite IShares MSCI and BMO Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, BMO Long 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 Long will offset losses from the drop in BMO Long's long position.| IShares MSCI vs. iShares MSCI Emerging | IShares MSCI vs. iShares MSCI USA | IShares MSCI vs. iShares MSCI Global | IShares MSCI vs. iShares Core MSCI |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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