Correlation Between BMO Equal and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both BMO Equal and BMO MSCI 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 Equal and BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Equal Weight and BMO MSCI USA, you can compare the effects of market volatilities on BMO Equal and BMO MSCI 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 Equal with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Equal and BMO MSCI.
Diversification Opportunities for BMO Equal and BMO MSCI
Excellent diversification
The 3 months correlation between BMO and BMO is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and BMO MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI USA and BMO Equal 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 Equal Weight are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI USA has no effect on the direction of BMO Equal i.e., BMO Equal and BMO MSCI go up and down completely randomly.
Pair Corralation between BMO Equal and BMO MSCI
Assuming the 90 days trading horizon BMO Equal Weight is expected to under-perform the BMO MSCI. In addition to that, BMO Equal is 1.01 times more volatile than BMO MSCI USA. It trades about -0.01 of its total potential returns per unit of risk. BMO MSCI USA is currently generating about 0.1 per unit of volatility. If you would invest 8,676 in BMO MSCI USA on August 28, 2024 and sell it today you would earn a total of 168.00 from holding BMO MSCI USA or generate 1.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Equal Weight vs. BMO MSCI USA
Performance |
| Timeline |
| BMO Equal Weight |
| BMO MSCI USA |
BMO Equal and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Equal and BMO MSCI
The main advantage of trading using opposite BMO Equal and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Equal position performs unexpectedly, BMO MSCI 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 BMO MSCI will offset losses from the drop in BMO MSCI's long position.The idea behind BMO Equal Weight and BMO MSCI USA 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.| BMO MSCI vs. BMO MSCI All | BMO MSCI vs. BMO Low Volatility | BMO MSCI vs. BMO MSCI Europe | BMO MSCI vs. BMO MSCI Emerging |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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