Correlation Between BMO MSCI and BMO SP
Can any of the company-specific risk be diversified away by investing in both BMO MSCI and BMO SP 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 SP 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 SP 500, you can compare the effects of market volatilities on BMO MSCI and BMO SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and BMO SP.
Diversification Opportunities for BMO MSCI and BMO SP
Almost no diversification
The 3 months correlation between BMO and BMO is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI USA and BMO SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SP 500 has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO SP go up and down completely randomly.
Pair Corralation between BMO MSCI and BMO SP
Assuming the 90 days trading horizon BMO MSCI is expected to generate 1.36 times less return on investment than BMO SP. In addition to that, BMO MSCI is 1.04 times more volatile than BMO SP 500. It trades about 0.2 of its total potential returns per unit of risk. BMO SP 500 is currently generating about 0.28 per unit of volatility. If you would invest 8,469 in BMO SP 500 on August 28, 2024 and sell it today you would earn a total of 795.00 from holding BMO SP 500 or generate 9.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO MSCI USA vs. BMO SP 500
Performance |
| Timeline |
| BMO MSCI USA |
| BMO SP 500 |
BMO MSCI and BMO SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO MSCI and BMO SP
The main advantage of trading using opposite BMO MSCI and BMO SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI position performs unexpectedly, BMO SP 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 SP will offset losses from the drop in BMO SP'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 |
| BMO SP vs. BMO SPTSX Capped | BMO SP vs. BMO NASDAQ 100 | BMO SP vs. iShares Core SP | BMO SP vs. Vanguard 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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