Correlation Between BMO SP and IShares ESG
Can any of the company-specific risk be diversified away by investing in both BMO SP and IShares ESG 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 SP and IShares ESG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO SP 500 and iShares ESG MSCI, you can compare the effects of market volatilities on BMO SP and IShares ESG 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 SP with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and IShares ESG.
Diversification Opportunities for BMO SP and IShares ESG
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between BMO and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and iShares ESG MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG MSCI and BMO SP 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 SP 500 are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG MSCI has no effect on the direction of BMO SP i.e., BMO SP and IShares ESG go up and down completely randomly.
Pair Corralation between BMO SP and IShares ESG
Assuming the 90 days trading horizon BMO SP is expected to generate 1.12 times less return on investment than IShares ESG. But when comparing it to its historical volatility, BMO SP 500 is 1.12 times less risky than IShares ESG. It trades about 0.17 of its potential returns per unit of risk. iShares ESG MSCI is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 4,279 in iShares ESG MSCI on August 26, 2024 and sell it today you would earn a total of 163.00 from holding iShares ESG MSCI or generate 3.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO SP 500 vs. iShares ESG MSCI
Performance |
| Timeline |
| BMO SP 500 |
| iShares ESG MSCI |
BMO SP and IShares ESG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO SP and IShares ESG
The main advantage of trading using opposite BMO SP and IShares ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SP position performs unexpectedly, IShares ESG 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 ESG will offset losses from the drop in IShares ESG's long position.The idea behind BMO SP 500 and iShares ESG MSCI pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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