Correlation Between IShares MSCI and BMO Long

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and BMO Long 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 IShares MSCI and BMO Long into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares MSCI Global and BMO Long Federal, you can compare the effects of market volatilities on IShares MSCI and BMO Long 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 IShares MSCI with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and BMO Long.

Diversification Opportunities for IShares MSCI and BMO Long

0.78

Correlation Coefficient

IShares MSCI  BMO Long

Poor diversification

The 3 months correlation between IShares and BMO is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and BMO Long Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Federal and IShares 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 iShares MSCI Global are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Federal has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO Long go up and down completely randomly.

Pair Corralation between IShares MSCI and BMO Long

Given the investment horizon of 90 days iShares MSCI Global is expected to generate 0.61 times more return on investment than BMO Long. However, iShares MSCI Global is 1.64 times less risky than BMO Long. It trades about 0.2 of its potential returns per unit of risk. BMO Long Federal is currently generating about 0.04 per unit of risk. If you would invest  10,908  in iShares MSCI Global on December 29, 2024 and sell it today you would earn a total of  729.00  from holding iShares MSCI Global or generate 6.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

iShares MSCI Global  vs.  BMO Long Federal

iShares MSCI Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Global are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BMO Long Federal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Federal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, BMO Long is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and BMO Long

The main advantage of trading using opposite IShares MSCI and BMO Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, BMO Long 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 Long will offset losses from the drop in BMO Long's long position.

The idea behind iShares MSCI Global and BMO Long Federal 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.