Correlation Between BMO Aggregate and IShares SP
Can any of the company-specific risk be diversified away by investing in both BMO Aggregate and IShares SP 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 BMO Aggregate and IShares SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Aggregate Bond and iShares SP Small Cap, you can compare the effects of market volatilities on BMO Aggregate and IShares SP 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 BMO Aggregate with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and IShares SP.
Diversification Opportunities for BMO Aggregate and IShares SP
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BMO and IShares is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small and BMO Aggregate 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 BMO Aggregate Bond are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares SP go up and down completely randomly.
Pair Corralation between BMO Aggregate and IShares SP
Assuming the 90 days trading horizon BMO Aggregate is expected to generate 2.8 times less return on investment than IShares SP. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.77 times less risky than IShares SP. It trades about 0.05 of its potential returns per unit of risk. iShares SP Small Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,318 in iShares SP Small Cap on September 14, 2024 and sell it today you would earn a total of 751.00 from holding iShares SP Small Cap or generate 32.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Aggregate Bond vs. iShares SP Small Cap
Performance |
| Timeline |
| BMO Aggregate Bond |
| iShares SP Small |
BMO Aggregate and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Aggregate and IShares SP
The main advantage of trading using opposite BMO Aggregate and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Aggregate position performs unexpectedly, IShares SP 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 IShares SP will offset losses from the drop in IShares SP's long position.| BMO Aggregate vs. iShares Core MSCI | BMO Aggregate vs. Vanguard FTSE Canada | BMO Aggregate vs. Vanguard Canadian Aggregate | BMO Aggregate vs. iShares Core MSCI |
| IShares SP vs. iShares SPTSX 60 | IShares SP vs. iShares Core SP | IShares SP vs. iShares Core SPTSX | IShares SP vs. BMO Aggregate Bond |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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