Correlation Between BMO Mid and IShares ESG
Can any of the company-specific risk be diversified away by investing in both BMO Mid and IShares ESG 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 Mid and IShares ESG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Mid Corporate and iShares ESG Aware, you can compare the effects of market volatilities on BMO Mid and IShares ESG 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 Mid with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Mid and IShares ESG.
Diversification Opportunities for BMO Mid and IShares ESG
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BMO Mid Corporate and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and BMO Mid 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 Mid Corporate are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Aware has no effect on the direction of BMO Mid i.e., BMO Mid and IShares ESG go up and down completely randomly.
Pair Corralation between BMO Mid and IShares ESG
Assuming the 90 days trading horizon BMO Mid Corporate is expected to generate 2.31 times more return on investment than IShares ESG. However, BMO Mid is 2.31 times more volatile than iShares ESG Aware. It trades about 0.27 of its potential returns per unit of risk. iShares ESG Aware is currently generating about 0.34 per unit of risk. If you would invest 1,548 in BMO Mid Corporate on November 9, 2024 and sell it today you would earn a total of 33.00 from holding BMO Mid Corporate or generate 2.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Mid Corporate vs. iShares ESG Aware
Performance |
| Timeline |
| BMO Mid Corporate |
| iShares ESG Aware |
BMO Mid and IShares ESG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Mid and IShares ESG
The main advantage of trading using opposite BMO Mid and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Mid position performs unexpectedly, IShares ESG 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 ESG will offset losses from the drop in IShares ESG's long position.| BMO Mid vs. BMO Long Corporate | BMO Mid vs. BMO Short Corporate | BMO Mid vs. BMO High Yield | BMO Mid vs. BMO Short Provincial |
| IShares ESG vs. iShares ESG Aware | IShares ESG vs. iShares ESG Aware | IShares ESG vs. iShares ESG Aware | IShares ESG vs. iShares ESG 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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