Correlation Between BMO Short and IShares Convertible
Can any of the company-specific risk be diversified away by investing in both BMO Short and IShares Convertible 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 Short and IShares Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Short Corporate and iShares Convertible Bond, you can compare the effects of market volatilities on BMO Short and IShares Convertible 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 Short with a short position of IShares Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and IShares Convertible.
Diversification Opportunities for BMO Short and IShares Convertible
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and iShares Convertible Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Convertible Bond and BMO Short 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 Short Corporate are associated (or correlated) with IShares Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Convertible Bond has no effect on the direction of BMO Short i.e., BMO Short and IShares Convertible go up and down completely randomly.
Pair Corralation between BMO Short and IShares Convertible
Assuming the 90 days trading horizon BMO Short is expected to generate 2.66 times less return on investment than IShares Convertible. But when comparing it to its historical volatility, BMO Short Corporate is 3.62 times less risky than IShares Convertible. It trades about 0.17 of its potential returns per unit of risk. iShares Convertible Bond is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,431 in iShares Convertible Bond on August 29, 2024 and sell it today you would earn a total of 305.00 from holding iShares Convertible Bond or generate 21.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Corporate vs. iShares Convertible Bond
Performance |
| Timeline |
| BMO Short Corporate |
| iShares Convertible Bond |
BMO Short and IShares Convertible Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and IShares Convertible
The main advantage of trading using opposite BMO Short and IShares Convertible positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, IShares Convertible 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 Convertible will offset losses from the drop in IShares Convertible's long position.| BMO Short vs. BMO Long Federal | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate | BMO Short vs. BMO High Yield |
| IShares Convertible vs. Purpose Monthly Income | IShares Convertible vs. Purpose Core Dividend | IShares Convertible vs. Purpose Tactical Hedged | IShares Convertible vs. Purpose Best Ideas |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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