Correlation Between IShares MSCI and BMO Aggregate
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and BMO Aggregate 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 Aggregate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI Europe and BMO Aggregate Bond, you can compare the effects of market volatilities on IShares MSCI and BMO Aggregate 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 Aggregate. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and BMO Aggregate.
Diversification Opportunities for IShares MSCI and BMO Aggregate
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between IShares and BMO is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond 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 Europe are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO Aggregate go up and down completely randomly.
Pair Corralation between IShares MSCI and BMO Aggregate
Assuming the 90 days trading horizon iShares MSCI Europe is expected to under-perform the BMO Aggregate. In addition to that, IShares MSCI is 1.66 times more volatile than BMO Aggregate Bond. It trades about -0.16 of its total potential returns per unit of risk. BMO Aggregate Bond is currently generating about -0.16 per unit of volatility. If you would invest 3,101 in BMO Aggregate Bond on August 30, 2024 and sell it today you would lose (72.00) from holding BMO Aggregate Bond or give up 2.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI Europe vs. BMO Aggregate Bond
Performance |
| Timeline |
| iShares MSCI Europe |
| BMO Aggregate Bond |
IShares MSCI and BMO Aggregate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and BMO Aggregate
The main advantage of trading using opposite IShares MSCI and BMO Aggregate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, BMO Aggregate 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 Aggregate will offset losses from the drop in BMO Aggregate's long position.| IShares MSCI vs. Vanguard FTSE Developed | IShares MSCI vs. Vanguard FTSE Emerging | IShares MSCI vs. Vanguard FTSE Developed | IShares MSCI vs. Vanguard Dividend Appreciation |
| BMO Aggregate vs. BMO Short Term Bond | BMO Aggregate vs. BMO Canadian Bank | BMO Aggregate vs. BMO Aggregate Bond | BMO Aggregate vs. BMO Balanced ETF |
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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