Correlation Between BMO Emerging and IShares IG
Can any of the company-specific risk be diversified away by investing in both BMO Emerging and IShares IG 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 Emerging and IShares IG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Emerging Markets and iShares IG Corporate, you can compare the effects of market volatilities on BMO Emerging and IShares IG 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 Emerging with a short position of IShares IG. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Emerging and IShares IG.
Diversification Opportunities for BMO Emerging and IShares IG
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 Emerging Markets and iShares IG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IG Corporate and BMO Emerging 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 Emerging Markets are associated (or correlated) with IShares IG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IG Corporate has no effect on the direction of BMO Emerging i.e., BMO Emerging and IShares IG go up and down completely randomly.
Pair Corralation between BMO Emerging and IShares IG
Assuming the 90 days trading horizon BMO Emerging Markets is expected to generate 0.84 times more return on investment than IShares IG. However, BMO Emerging Markets is 1.19 times less risky than IShares IG. It trades about -0.06 of its potential returns per unit of risk. iShares IG Corporate is currently generating about -0.08 per unit of risk. If you would invest 1,240 in BMO Emerging Markets on August 25, 2024 and sell it today you would lose (7.00) from holding BMO Emerging Markets or give up 0.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Emerging Markets vs. iShares IG Corporate
Performance |
| Timeline |
| BMO Emerging Markets |
| iShares IG Corporate |
BMO Emerging and IShares IG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Emerging and IShares IG
The main advantage of trading using opposite BMO Emerging and IShares IG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Emerging position performs unexpectedly, IShares IG 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 IG will offset losses from the drop in IShares IG's long position.| BMO Emerging vs. iShares IG Corporate | BMO Emerging vs. iShares 1 10Yr Laddered | BMO Emerging vs. iShares Floating Rate | BMO Emerging vs. iShares Convertible Bond |
| IShares IG vs. Mackenzie High Yield | IShares IG vs. Mackenzie Core Plus | IShares IG vs. Mackenzie Canadian Aggregate | IShares IG vs. Mackenzie Core Plus |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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