Correlation Between BMO High and IShares Core
Can any of the company-specific risk be diversified away by investing in both BMO High and IShares Core 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 High and IShares Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO High Yield and iShares Core Canadian, you can compare the effects of market volatilities on BMO High and IShares Core 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 High with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and IShares Core.
Diversification Opportunities for BMO High and IShares Core
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Yield and iShares Core Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Canadian and BMO High 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 High Yield are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Canadian has no effect on the direction of BMO High i.e., BMO High and IShares Core go up and down completely randomly.
Pair Corralation between BMO High and IShares Core
Assuming the 90 days trading horizon BMO High is expected to generate 1.06 times less return on investment than IShares Core. In addition to that, BMO High is 1.15 times more volatile than iShares Core Canadian. It trades about 0.13 of its total potential returns per unit of risk. iShares Core Canadian is currently generating about 0.16 per unit of volatility. If you would invest 1,899 in iShares Core Canadian on August 29, 2024 and sell it today you would earn a total of 110.00 from holding iShares Core Canadian or generate 5.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO High Yield vs. iShares Core Canadian
Performance |
| Timeline |
| BMO High Yield |
| iShares Core Canadian |
BMO High and IShares Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO High and IShares Core
The main advantage of trading using opposite BMO High and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO High position performs unexpectedly, IShares Core 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 Core will offset losses from the drop in IShares Core's long position.| BMO High vs. BMO Mid Federal | BMO High vs. BMO Short Corporate | BMO High vs. BMO Emerging Markets | BMO High vs. BMO Long Corporate |
| IShares Core vs. BMO Long Corporate | IShares Core vs. BMO Short Corporate | IShares Core vs. BMO High Yield | IShares Core vs. BMO Short Provincial |
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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