Correlation Between IShares ESG and BMO MSCI

Can any of the company-specific risk be diversified away by investing in both IShares ESG 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 ESG 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 ESG Aware and BMO MSCI Canada, you can compare the effects of market volatilities on IShares ESG 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 ESG with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and BMO MSCI.

Diversification Opportunities for IShares ESG and BMO MSCI

0.99

Correlation Coefficient

IShares ESG  BMO MSCI

No risk reduction

The 3 months correlation between IShares and BMO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and BMO MSCI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI Canada 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 Aware 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 Canada has no effect on the direction of IShares ESG i.e., IShares ESG and BMO MSCI go up and down completely randomly.

Pair Corralation between IShares ESG and BMO MSCI

Assuming the 90 days trading horizon IShares ESG is expected to generate 1.19 times less return on investment than BMO MSCI. But when comparing it to its historical volatility, iShares ESG Aware is 1.09 times less risky than BMO MSCI. It trades about 0.34 of its potential returns per unit of risk. BMO MSCI Canada is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  3,689  in BMO MSCI Canada on September 13, 2024 and sell it today you would earn a total of  479.00  from holding BMO MSCI Canada or generate 12.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares ESG Aware  vs.  BMO MSCI Canada

iShares ESG Aware

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO MSCI Canada

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI Canada are ranked lower than 28 (%) 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 January 2025.

Pair Trading with IShares ESG and BMO MSCI

The main advantage of trading using opposite IShares ESG and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG Aware and BMO MSCI Canada 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.