Correlation Between IShares China and BMO MSCI

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

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

Diversification Opportunities for IShares China and BMO MSCI

-0.14

Correlation Coefficient

IShares China  BMO MSCI

Good diversification

The 3 months correlation between IShares and BMO is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding iShares China and BMO MSCI India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI India and IShares China 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 China 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 India has no effect on the direction of IShares China i.e., IShares China and BMO MSCI go up and down completely randomly.

Pair Corralation between IShares China and BMO MSCI

Assuming the 90 days trading horizon iShares China is expected to generate 2.82 times more return on investment than BMO MSCI. However, IShares China is 2.82 times more volatile than BMO MSCI India. It trades about 0.06 of its potential returns per unit of risk. BMO MSCI India is currently generating about 0.08 per unit of risk. If you would invest  1,768  in iShares China on September 3, 2024 and sell it today you would earn a total of  265.00  from holding iShares China or generate 14.99% return on investment over 90 days.

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

iShares China  vs.  BMO MSCI India

iShares China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares China displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO MSCI India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, BMO MSCI 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 China and BMO MSCI

The main advantage of trading using opposite IShares China and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares China 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 iShares China and BMO MSCI India 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.