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 Developed, 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
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between BMO and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed 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 Developed 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 under-perform the Vanguard FTSE. But the etf apears to be less risky and, when comparing its historical volatility, BMO MSCI EAFE is 1.0 times less risky than Vanguard FTSE. The etf trades about -0.2 of its potential returns per unit of risk. The Vanguard FTSE Developed is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest 3,508 in Vanguard FTSE Developed on August 28, 2024 and sell it today you would lose (79.00) from holding Vanguard FTSE Developed or give up 2.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI EAFE vs. Vanguard FTSE Developed
Performance |
| Timeline |
| BMO MSCI EAFE |
| Vanguard FTSE Developed |
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 Developed | BMO MSCI vs. iShares MSCI EAFE | BMO MSCI vs. BMO MSCI EAFE | BMO MSCI vs. BMO Low Volatility |
| Vanguard FTSE vs. iShares MSCI EAFE | Vanguard FTSE vs. BMO MSCI EAFE | Vanguard FTSE vs. BMO Low Volatility |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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