Correlation Between IShares 1 and BMO Equal

Can any of the company-specific risk be diversified away by investing in both IShares 1 and BMO Equal 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 Equal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 1 5 Year and BMO Equal Weight, you can compare the effects of market volatilities on IShares 1 and BMO Equal 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 Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 1 and BMO Equal.

Diversification Opportunities for IShares 1 and BMO Equal

-0.38

Correlation Coefficient

IShares 1  BMO Equal

Very good diversification

The 3 months correlation between IShares and BMO is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding iShares 1 5 Year and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 5 Year are associated (or correlated) with BMO Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of IShares 1 i.e., IShares 1 and BMO Equal go up and down completely randomly.

Pair Corralation between IShares 1 and BMO Equal

Assuming the 90 days trading horizon iShares 1 5 Year is expected to generate 0.18 times more return on investment than BMO Equal. However, iShares 1 5 Year is 5.42 times less risky than BMO Equal. It trades about 0.13 of its potential returns per unit of risk. BMO Equal Weight is currently generating about 0.02 per unit of risk. If you would invest  1,653  in iShares 1 5 Year on October 7, 2024 and sell it today you would earn a total of  86.00  from holding iShares 1 5 Year or generate 5.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares 1 5 Year  vs.  BMO Equal Weight

iShares 1 5

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 5 Year are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental 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 Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with IShares 1 and BMO Equal

The main advantage of trading using opposite IShares 1 and BMO Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 1 position performs unexpectedly, BMO Equal 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 Equal will offset losses from the drop in BMO Equal's long position.

The idea behind iShares 1 5 Year and BMO Equal Weight 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.