Correlation Between BMO Covered and IShares Core
Can any of the company-specific risk be diversified away by investing in both BMO Covered and IShares Core 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 Covered and IShares Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Covered Call and iShares Core MSCI, you can compare the effects of market volatilities on BMO Covered and IShares Core 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 Covered with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and IShares Core.
Diversification Opportunities for BMO Covered and IShares Core
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between BMO and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI and BMO Covered 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 Covered Call are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of BMO Covered i.e., BMO Covered and IShares Core go up and down completely randomly.
Pair Corralation between BMO Covered and IShares Core
Assuming the 90 days trading horizon BMO Covered is expected to generate 1.13 times less return on investment than IShares Core. In addition to that, BMO Covered is 1.25 times more volatile than iShares Core MSCI. It trades about 0.06 of its total potential returns per unit of risk. iShares Core MSCI is currently generating about 0.08 per unit of volatility. If you would invest 2,577 in iShares Core MSCI on August 25, 2024 and sell it today you would earn a total of 684.00 from holding iShares Core MSCI or generate 26.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Covered Call vs. iShares Core MSCI
Performance |
| Timeline |
| BMO Covered Call |
| iShares Core MSCI |
BMO Covered and IShares Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO Covered and IShares Core
The main advantage of trading using opposite BMO Covered and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered position performs unexpectedly, IShares Core 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 Core will offset losses from the drop in IShares Core's long position.| BMO Covered vs. BMO Covered Call | BMO Covered vs. BMO SPTSX Equal | BMO Covered vs. BMO Canadian High | BMO Covered vs. BMO High Dividend |
| IShares Core vs. BMO Europe High | IShares Core vs. BMO Covered Call | IShares Core vs. BMO Covered Call | IShares Core vs. BMO Europe High |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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