Correlation Between BMO High and IShares Short
Can any of the company-specific risk be diversified away by investing in both BMO High and IShares Short 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 Short 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 Short Term, you can compare the effects of market volatilities on BMO High and IShares Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and IShares Short.
Diversification Opportunities for BMO High and IShares Short
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Yield and iShares Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Short Term 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Short Term has no effect on the direction of BMO High i.e., BMO High and IShares Short go up and down completely randomly.
Pair Corralation between BMO High and IShares Short
Assuming the 90 days trading horizon BMO High Yield is expected to generate 1.54 times more return on investment than IShares Short. However, BMO High is 1.54 times more volatile than iShares Short Term. It trades about 0.11 of its potential returns per unit of risk. iShares Short Term is currently generating about 0.12 per unit of risk. If you would invest 1,026 in BMO High Yield on August 26, 2024 and sell it today you would earn a total of 108.00 from holding BMO High Yield or generate 10.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO High Yield vs. iShares Short Term
Performance |
| Timeline |
| BMO High Yield |
| iShares Short Term |
BMO High and IShares Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO High and IShares Short
The main advantage of trading using opposite BMO High and IShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO High position performs unexpectedly, IShares Short 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 Short will offset losses from the drop in IShares Short'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 Short vs. BMO Mid Federal | IShares Short vs. BMO Short Corporate | IShares Short vs. BMO Emerging Markets | IShares Short vs. BMO Long Corporate |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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