Correlation Between BMO MSCI and BMO Balanced
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and BMO Balanced 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 MSCI and BMO Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO MSCI EAFE and BMO Balanced ETF, you can compare the effects of market volatilities on BMO MSCI and BMO Balanced 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 MSCI with a short position of BMO Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and BMO Balanced.
Diversification Opportunities for BMO MSCI and BMO Balanced
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between BMO and BMO is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and BMO Balanced ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Balanced ETF and BMO MSCI 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 MSCI EAFE are associated (or correlated) with BMO Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Balanced ETF has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO Balanced go up and down completely randomly.
Pair Corralation between BMO MSCI and BMO Balanced
Assuming the 90 days trading horizon BMO MSCI is expected to generate 1.33 times less return on investment than BMO Balanced. But when comparing it to its historical volatility, BMO MSCI EAFE is 3.13 times less risky than BMO Balanced. It trades about 0.08 of its potential returns per unit of risk. BMO Balanced ETF is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,698 in BMO Balanced ETF on August 31, 2024 and sell it today you would earn a total of 378.00 from holding BMO Balanced ETF or generate 14.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 79.36% |
| Values | Daily Returns |
BMO MSCI EAFE vs. BMO Balanced ETF
Performance |
| Timeline |
| BMO MSCI EAFE |
| BMO Balanced ETF |
BMO MSCI and BMO Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and BMO Balanced
The main advantage of trading using opposite BMO MSCI and BMO Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, BMO Balanced 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 Balanced will offset losses from the drop in BMO Balanced's long position.| BMO MSCI vs. BMO SP 500 | BMO MSCI vs. BMO MSCI Emerging | BMO MSCI vs. BMO Global Infrastructure | BMO MSCI vs. BMO MSCI EAFE |
| BMO Balanced vs. BMO Short Term Bond | BMO Balanced vs. BMO Canadian Bank | BMO Balanced vs. BMO Aggregate Bond | BMO Balanced 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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