Correlation Between IShares Floating and BMO Long

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

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

Diversification Opportunities for IShares Floating and BMO Long

-0.66

Correlation Coefficient

IShares Floating  BMO Long

Excellent diversification

The 3 months correlation between IShares and BMO is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares Floating Rate and BMO Long Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Long Federal and IShares Floating 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 Floating Rate are associated (or correlated) with BMO Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Long Federal has no effect on the direction of IShares Floating i.e., IShares Floating and BMO Long go up and down completely randomly.

Pair Corralation between IShares Floating and BMO Long

Assuming the 90 days trading horizon iShares Floating Rate is expected to generate 0.05 times more return on investment than BMO Long. However, iShares Floating Rate is 22.21 times less risky than BMO Long. It trades about 0.44 of its potential returns per unit of risk. BMO Long Federal is currently generating about -0.04 per unit of risk. If you would invest  1,991  in iShares Floating Rate on August 31, 2024 and sell it today you would earn a total of  14.00  from holding iShares Floating Rate or generate 0.7% return on investment over 90 days.

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

iShares Floating Rate  vs.  BMO Long Federal

iShares Floating Rate

Risk-Adjusted Performance

39 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Floating Rate are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Floating is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Long Federal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Floating and BMO Long

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

The idea behind iShares Floating Rate and BMO Long Federal 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.