Correlation Between IShares 1 and BMO Long

Can any of the company-specific risk be diversified away by investing in both IShares 1 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 1 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 1 10Yr Laddered and BMO Long Corporate, you can compare the effects of market volatilities on IShares 1 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 1 with a short position of BMO Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 1 and BMO Long.

Diversification Opportunities for IShares 1 and BMO Long

0.92

Correlation Coefficient

IShares 1  BMO Long

Almost no diversification

The 3 months correlation between IShares and BMO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares 1 10Yr Laddered and BMO Long Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Corporate and IShares 1 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 1 10Yr Laddered 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 Corporate has no effect on the direction of IShares 1 i.e., IShares 1 and BMO Long go up and down completely randomly.

Pair Corralation between IShares 1 and BMO Long

Assuming the 90 days trading horizon IShares 1 is expected to generate 1.34 times less return on investment than BMO Long. But when comparing it to its historical volatility, iShares 1 10Yr Laddered is 2.73 times less risky than BMO Long. It trades about 0.09 of its potential returns per unit of risk. BMO Long Corporate is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,350  in BMO Long Corporate on September 26, 2024 and sell it today you would earn a total of  206.00  from holding BMO Long Corporate or generate 15.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

iShares 1 10Yr Laddered  vs.  BMO Long Corporate

iShares 1 10Yr

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 10Yr Laddered are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares 1 is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Long Corporate

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Long Corporate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Long is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares 1 and BMO Long

The main advantage of trading using opposite IShares 1 and BMO Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 1 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 1 10Yr Laddered and BMO Long Corporate 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.

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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.