Correlation Between IShares Global and BMO Global

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

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

Diversification Opportunities for IShares Global and BMO Global

0.92

Correlation Coefficient

IShares Global  BMO Global

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 Global Infrastructure 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 IShares Global 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 Global Infrastructure 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 IShares Global i.e., IShares Global and BMO Global go up and down completely randomly.

Pair Corralation between IShares Global and BMO Global

Assuming the 90 days trading horizon iShares Global Infrastructure is expected to generate 0.91 times more return on investment than BMO Global. However, iShares Global Infrastructure is 1.1 times less risky than BMO Global. It trades about 0.4 of its potential returns per unit of risk. BMO Global Infrastructure is currently generating about 0.28 per unit of risk. If you would invest  4,336  in iShares Global Infrastructure on August 31, 2024 and sell it today you would earn a total of  739.00  from holding iShares Global Infrastructure or generate 17.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

iShares Global Infrastructure  vs.  BMO Global Infrastructure

iShares Global Infra

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Infrastructure are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IShares Global displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO Global Infrastructure

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Infrastructure are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, BMO Global may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Global and BMO Global

The main advantage of trading using opposite IShares Global and BMO Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Global 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 iShares Global Infrastructure 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.