Correlation Between BMO MSCI and BMO Global
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and BMO Global 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 BMO Global 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 BMO Global Infrastructure, you can compare the effects of market volatilities on BMO MSCI and BMO Global 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 BMO Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and BMO Global.
Diversification Opportunities for BMO MSCI and BMO Global
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BMO and BMO is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI USA and BMO Global Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Infrastructure 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 BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Infrastructure has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO Global go up and down completely randomly.
Pair Corralation between BMO MSCI and BMO Global
Assuming the 90 days trading horizon BMO MSCI is expected to generate 2.88 times less return on investment than BMO Global. In addition to that, BMO MSCI is 1.22 times more volatile than BMO Global Infrastructure. It trades about 0.09 of its total potential returns per unit of risk. BMO Global Infrastructure is currently generating about 0.33 per unit of volatility. If you would invest 5,130 in BMO Global Infrastructure on August 25, 2024 and sell it today you would earn a total of 286.00 from holding BMO Global Infrastructure or generate 5.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI USA vs. BMO Global Infrastructure
Performance |
| Timeline |
| BMO MSCI USA |
| BMO Global Infrastructure |
BMO MSCI and BMO Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and BMO Global
The main advantage of trading using opposite BMO MSCI and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, BMO Global 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 Global will offset losses from the drop in BMO Global's long position.The idea behind BMO MSCI USA and BMO Global Infrastructure 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 Global vs. CI Global REIT | BMO Global vs. CI Global Real | BMO Global vs. CI Marret Alternative | BMO Global vs. CI Global Financial |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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