Correlation Between BMO Long and IShares Short
Can any of the company-specific risk be diversified away by investing in both BMO Long 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 Long 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 Long Corporate and iShares Short Term, you can compare the effects of market volatilities on BMO Long 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 Long with a short position of IShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and IShares Short.
Diversification Opportunities for BMO Long and IShares Short
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate 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 Long 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 Long Corporate 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 Long i.e., BMO Long and IShares Short go up and down completely randomly.
Pair Corralation between BMO Long and IShares Short
Assuming the 90 days trading horizon BMO Long Corporate is expected to generate 2.96 times more return on investment than IShares Short. However, BMO Long is 2.96 times more volatile than iShares Short Term. It trades about 0.05 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 1,377 in BMO Long Corporate on August 26, 2024 and sell it today you would earn a total of 143.00 from holding BMO Long Corporate or generate 10.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Long Corporate vs. iShares Short Term
Performance |
| Timeline |
| BMO Long Corporate |
| iShares Short Term |
BMO Long and IShares Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Long and IShares Short
The main advantage of trading using opposite BMO Long and IShares Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long 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 Long vs. BMO Mid Corporate | BMO Long vs. BMO Short Corporate | BMO Long vs. BMO High Yield | BMO Long vs. BMO Long Provincial |
| 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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