Correlation Between IShares Fundamental and BMO Aggregate

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

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

Diversification Opportunities for IShares Fundamental and BMO Aggregate

-0.05

Correlation Coefficient

IShares Fundamental  BMO Aggregate

Good diversification

The 3 months correlation between IShares and BMO is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond and IShares Fundamental 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 Fundamental Hedged are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and BMO Aggregate go up and down completely randomly.

Pair Corralation between IShares Fundamental and BMO Aggregate

Assuming the 90 days trading horizon iShares Fundamental Hedged is expected to under-perform the BMO Aggregate. In addition to that, IShares Fundamental is 2.26 times more volatile than BMO Aggregate Bond. It trades about -0.01 of its total potential returns per unit of risk. BMO Aggregate Bond is currently generating about 0.07 per unit of volatility. If you would invest  2,979  in BMO Aggregate Bond on December 30, 2024 and sell it today you would earn a total of  47.00  from holding BMO Aggregate Bond or generate 1.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

iShares Fundamental Hedged  vs.  BMO Aggregate Bond

iShares Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Fundamental Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Fundamental is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Aggregate Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Fundamental and BMO Aggregate

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

The idea behind iShares Fundamental Hedged and BMO Aggregate Bond 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.