Correlation Between IShares Canadian and BMO Canadian

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

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

Diversification Opportunities for IShares Canadian and BMO Canadian

0.81

Correlation Coefficient

IShares Canadian  BMO Canadian

Very poor diversification

The 3 months correlation between IShares and BMO is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Select and BMO Canadian Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian Dividend and IShares Canadian 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 Canadian Select are associated (or correlated) with BMO Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian Dividend has no effect on the direction of IShares Canadian i.e., IShares Canadian and BMO Canadian go up and down completely randomly.

Pair Corralation between IShares Canadian and BMO Canadian

Assuming the 90 days trading horizon iShares Canadian Select is expected to under-perform the BMO Canadian. But the etf apears to be less risky and, when comparing its historical volatility, iShares Canadian Select is 1.15 times less risky than BMO Canadian. The etf trades about -0.01 of its potential returns per unit of risk. The BMO Canadian Dividend is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,238  in BMO Canadian Dividend on November 20, 2024 and sell it today you would earn a total of  3.00  from holding BMO Canadian Dividend or generate 0.13% return on investment over 90 days.

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

iShares Canadian Select  vs.  BMO Canadian Dividend

iShares Canadian Select

Risk-Adjusted Performance

Very Weak

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

BMO Canadian Dividend

Risk-Adjusted Performance

Very Weak

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

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

The idea behind iShares Canadian Select and BMO Canadian Dividend 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.