Correlation Between BMO Short and IShares Canadian
Can any of the company-specific risk be diversified away by investing in both BMO Short and IShares Canadian 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 Canadian 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 Canadian HYBrid, you can compare the effects of market volatilities on BMO Short and IShares Canadian 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 Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Short and IShares Canadian.
Diversification Opportunities for BMO Short and IShares Canadian
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate and iShares Canadian HYBrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian HYBrid 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 Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian HYBrid has no effect on the direction of BMO Short i.e., BMO Short and IShares Canadian go up and down completely randomly.
Pair Corralation between BMO Short and IShares Canadian
Assuming the 90 days trading horizon BMO Short is expected to generate 1.24 times less return on investment than IShares Canadian. But when comparing it to its historical volatility, BMO Short Corporate is 2.43 times less risky than IShares Canadian. It trades about 0.29 of its potential returns per unit of risk. iShares Canadian HYBrid is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,963 in iShares Canadian HYBrid on September 26, 2024 and sell it today you would earn a total of 21.00 from holding iShares Canadian HYBrid or generate 1.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Corporate vs. iShares Canadian HYBrid
Performance |
| Timeline |
| BMO Short Corporate |
| iShares Canadian HYBrid |
BMO Short and IShares Canadian Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Short and IShares Canadian
The main advantage of trading using opposite BMO Short and IShares Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short position performs unexpectedly, IShares Canadian 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 Canadian will offset losses from the drop in IShares Canadian's long position.| BMO Short vs. Dynamic Active Crossover | BMO Short vs. Dynamic Active Tactical | BMO Short vs. Dynamic Active Preferred | BMO Short vs. Dynamic Active Canadian |
| IShares Canadian vs. iShares IG Corporate | IShares Canadian vs. iShares High Yield | IShares Canadian vs. iShares Floating Rate | IShares Canadian vs. iShares JP Morgan |
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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