Correlation Between IShares ESG and BMO Covered

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

Diversification Opportunities for IShares ESG and BMO Covered

0.93

Correlation Coefficient

IShares ESG  BMO Covered

Almost no diversification

The 3 months correlation between IShares and BMO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and BMO Covered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Covered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Covered Call has no effect on the direction of IShares ESG i.e., IShares ESG and BMO Covered go up and down completely randomly.

Pair Corralation between IShares ESG and BMO Covered

Assuming the 90 days trading horizon iShares ESG Aware is expected to under-perform the BMO Covered. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG Aware is 1.14 times less risky than BMO Covered. The etf trades about -0.22 of its potential returns per unit of risk. The BMO Covered Call is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  2,734  in BMO Covered Call on September 22, 2024 and sell it today you would lose (65.00) from holding BMO Covered Call or give up 2.38% of portfolio value over 90 days.

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

iShares ESG Aware  vs.  BMO Covered Call

iShares ESG Aware

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. 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 Covered Call

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Covered 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 Covered

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

The idea behind iShares ESG Aware and BMO Covered Call 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.