Correlation Between BMO MSCI and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and Vanguard FTSE 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 Vanguard FTSE 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 Vanguard FTSE Emerging, you can compare the effects of market volatilities on BMO MSCI and Vanguard FTSE 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 Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and Vanguard FTSE.
Diversification Opportunities for BMO MSCI and Vanguard FTSE
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BMO and Vanguard is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and Vanguard FTSE Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Emerging 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Emerging has no effect on the direction of BMO MSCI i.e., BMO MSCI and Vanguard FTSE go up and down completely randomly.
Pair Corralation between BMO MSCI and Vanguard FTSE
Assuming the 90 days trading horizon BMO MSCI EAFE is expected to generate 0.86 times more return on investment than Vanguard FTSE. However, BMO MSCI EAFE is 1.16 times less risky than Vanguard FTSE. It trades about 0.05 of its potential returns per unit of risk. Vanguard FTSE Emerging is currently generating about -0.09 per unit of risk. If you would invest 2,328 in BMO MSCI EAFE on September 2, 2024 and sell it today you would earn a total of 14.00 from holding BMO MSCI EAFE or generate 0.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI EAFE vs. Vanguard FTSE Emerging
Performance |
| Timeline |
| BMO MSCI EAFE |
| Vanguard FTSE Emerging |
BMO MSCI and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and Vanguard FTSE
The main advantage of trading using opposite BMO MSCI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.| BMO MSCI vs. Vanguard FTSE Emerging | BMO MSCI vs. Vanguard FTSE Developed | BMO MSCI vs. Vanguard Total Market | BMO MSCI vs. Vanguard Canadian Aggregate |
| Vanguard FTSE vs. Vanguard FTSE Developed | Vanguard FTSE vs. Vanguard Total Market | Vanguard FTSE vs. Vanguard FTSE Canada | Vanguard FTSE vs. Vanguard Canadian Aggregate |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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