Correlation Between IShares Core and BMO Short
Can any of the company-specific risk be diversified away by investing in both IShares Core and BMO Short 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 Core and BMO Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Core Canadian and BMO Short Federal, you can compare the effects of market volatilities on IShares Core and BMO Short 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 Core with a short position of BMO Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and BMO Short.
Diversification Opportunities for IShares Core and BMO Short
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and BMO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Canadian and BMO Short Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short Federal and IShares Core 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 Core Canadian are associated (or correlated) with BMO Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Federal has no effect on the direction of IShares Core i.e., IShares Core and BMO Short go up and down completely randomly.
Pair Corralation between IShares Core and BMO Short
Assuming the 90 days trading horizon iShares Core Canadian is expected to generate 5.06 times more return on investment than BMO Short. However, IShares Core is 5.06 times more volatile than BMO Short Federal. It trades about 0.11 of its potential returns per unit of risk. BMO Short Federal is currently generating about 0.18 per unit of risk. If you would invest 1,961 in iShares Core Canadian on September 13, 2024 and sell it today you would earn a total of 38.00 from holding iShares Core Canadian or generate 1.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Core Canadian vs. BMO Short Federal
Performance |
| Timeline |
| iShares Core Canadian |
| BMO Short Federal |
IShares Core and BMO Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Core and BMO Short
The main advantage of trading using opposite IShares Core and BMO Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core position performs unexpectedly, BMO Short 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 Short will offset losses from the drop in BMO Short's long position.| IShares Core vs. iShares Canadian Government | IShares Core vs. iShares Core Canadian | IShares Core vs. iShares Canadian Short | IShares Core vs. iShares Canadian Real |
| BMO Short vs. BMO Short Provincial | BMO Short vs. BMO Short Corporate | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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