Correlation Between Financial and BMO MSCI

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

By analyzing existing cross correlation between Financial 15 Split and BMO MSCI EAFE, you can compare the effects of market volatilities on Financial and BMO MSCI 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 Financial with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and BMO MSCI.

Diversification Opportunities for Financial and BMO MSCI

-0.43

Correlation Coefficient

Financial  BMO MSCI

Very good diversification

The 3 months correlation between Financial and BMO is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE and Financial 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 Financial 15 Split are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of Financial i.e., Financial and BMO MSCI go up and down completely randomly.

Pair Corralation between Financial and BMO MSCI

Assuming the 90 days trading horizon Financial 15 Split is expected to under-perform the BMO MSCI. In addition to that, Financial is 2.44 times more volatile than BMO MSCI EAFE. It trades about -0.04 of its total potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.19 per unit of volatility. If you would invest  2,284  in BMO MSCI EAFE on December 29, 2024 and sell it today you would earn a total of  199.00  from holding BMO MSCI EAFE or generate 8.71% return on investment over 90 days.

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

Financial 15 Split  vs.  BMO MSCI EAFE

Financial 15 Split

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial 15 Split has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI EAFE are ranked lower than 15 (%) 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 April 2025.

Pair Trading with Financial and BMO MSCI

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

The idea behind Financial 15 Split and BMO MSCI EAFE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.