Correlation Between BMO MSCI and IShares Edge
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and IShares Edge 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 MSCI and IShares Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO MSCI USA and iShares Edge MSCI, you can compare the effects of market volatilities on BMO MSCI and IShares Edge 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 MSCI with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and IShares Edge.
Diversification Opportunities for BMO MSCI and IShares Edge
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI USA and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI and BMO MSCI 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 MSCI USA are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of BMO MSCI i.e., BMO MSCI and IShares Edge go up and down completely randomly.
Pair Corralation between BMO MSCI and IShares Edge
Assuming the 90 days trading horizon BMO MSCI USA is expected to generate 1.21 times more return on investment than IShares Edge. However, BMO MSCI is 1.21 times more volatile than iShares Edge MSCI. It trades about 0.28 of its potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.32 per unit of risk. If you would invest 8,514 in BMO MSCI USA on September 1, 2024 and sell it today you would earn a total of 446.00 from holding BMO MSCI USA or generate 5.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI USA vs. iShares Edge MSCI
Performance |
| Timeline |
| BMO MSCI USA |
| iShares Edge MSCI |
BMO MSCI and IShares Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and IShares Edge
The main advantage of trading using opposite BMO MSCI and IShares Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, IShares Edge 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 Edge will offset losses from the drop in IShares Edge's long position.| BMO MSCI vs. BMO MSCI All | BMO MSCI vs. BMO Low Volatility | BMO MSCI vs. BMO MSCI Europe | BMO MSCI vs. BMO MSCI Emerging |
| IShares Edge vs. BMO SP 500 | IShares Edge vs. Vanguard SP 500 | IShares Edge vs. iShares Core SP | IShares Edge vs. BMO SP 500 |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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