Correlation Between IShares ESG and BMO Conservative

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

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

Diversification Opportunities for IShares ESG and BMO Conservative

0.82

Correlation Coefficient

IShares ESG  BMO Conservative

Very poor diversification

The 3 months correlation between IShares and BMO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Conservative 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 IShares ESG 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 ESG Conservative 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 IShares ESG i.e., IShares ESG and BMO Conservative go up and down completely randomly.

Pair Corralation between IShares ESG and BMO Conservative

Assuming the 90 days trading horizon iShares ESG Conservative is expected to generate 0.95 times more return on investment than BMO Conservative. However, iShares ESG Conservative is 1.06 times less risky than BMO Conservative. It trades about -0.15 of its potential returns per unit of risk. BMO Conservative ETF is currently generating about -0.22 per unit of risk. If you would invest  4,552  in iShares ESG Conservative on December 30, 2024 and sell it today you would lose (64.00) from holding iShares ESG Conservative or give up 1.41% of portfolio value over 90 days.

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

iShares ESG Conservative  vs.  BMO Conservative ETF

iShares ESG Conservative

Risk-Adjusted Performance

Very Weak

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

BMO Conservative ETF

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares ESG and BMO Conservative

The main advantage of trading using opposite IShares ESG and BMO Conservative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 iShares ESG Conservative 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.