Correlation Between BMO MSCI and BMO Conservative

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

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

Diversification Opportunities for BMO MSCI and BMO Conservative

0.59

Correlation Coefficient

BMO MSCI  BMO Conservative

Very weak diversification

The 3 months correlation between BMO and BMO is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI Canada and BMO Conservative ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Conservative ETF and BMO 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 BMO MSCI Canada are associated (or correlated) with BMO Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Conservative ETF has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO Conservative go up and down completely randomly.

Pair Corralation between BMO MSCI and BMO Conservative

Assuming the 90 days trading horizon BMO MSCI Canada is expected to generate 1.38 times more return on investment than BMO Conservative. However, BMO MSCI is 1.38 times more volatile than BMO Conservative ETF. It trades about 0.32 of its potential returns per unit of risk. BMO Conservative ETF is currently generating about 0.1 per unit of risk. If you would invest  3,721  in BMO MSCI Canada on September 14, 2024 and sell it today you would earn a total of  419.00  from holding BMO MSCI Canada or generate 11.26% return on investment over 90 days.

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

BMO MSCI Canada  vs.  BMO Conservative ETF

BMO MSCI Canada

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI Canada are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO Conservative ETF

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Conservative ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Conservative is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO MSCI and BMO Conservative

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

The idea behind BMO MSCI Canada and BMO Conservative ETF 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.