Correlation Between IShares Core and BMO Growth

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

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

Diversification Opportunities for IShares Core and BMO Growth

0.95

Correlation Coefficient

IShares Core  BMO Growth

Almost no diversification

The 3 months correlation between IShares and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Conservative and BMO Growth ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Growth ETF and IShares Core 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 Core Conservative are associated (or correlated) with BMO Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Growth ETF has no effect on the direction of IShares Core i.e., IShares Core and BMO Growth go up and down completely randomly.

Pair Corralation between IShares Core and BMO Growth

Assuming the 90 days trading horizon IShares Core is expected to generate 1.88 times less return on investment than BMO Growth. But when comparing it to its historical volatility, iShares Core Conservative is 1.39 times less risky than BMO Growth. It trades about 0.22 of its potential returns per unit of risk. BMO Growth ETF is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,346  in BMO Growth ETF on September 12, 2024 and sell it today you would earn a total of  340.00  from holding BMO Growth ETF or generate 7.82% return on investment over 90 days.

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

iShares Core Conservative  vs.  BMO Growth ETF

iShares Core Conservative

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Conservative are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Growth ETF

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Growth ETF are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and BMO Growth

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

The idea behind iShares Core Conservative and BMO Growth 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.