Correlation Between IShares Floating and BMO Short

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

Diversification Opportunities for IShares Floating and BMO Short

0.89

Correlation Coefficient

IShares Floating  BMO Short

Very poor diversification

The 3 months correlation between IShares and BMO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Floating Rate and BMO Short Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Short 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Short Federal has no effect on the direction of IShares Floating i.e., IShares Floating and BMO Short go up and down completely randomly.

Pair Corralation between IShares Floating and BMO Short

Assuming the 90 days trading horizon IShares Floating is expected to generate 1.86 times less return on investment than BMO Short. But when comparing it to its historical volatility, iShares Floating Rate is 3.11 times less risky than BMO Short. It trades about 0.26 of its potential returns per unit of risk. BMO Short Federal is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,374  in BMO Short Federal on December 29, 2024 and sell it today you would earn a total of  22.00  from holding BMO Short Federal or generate 1.6% return on investment over 90 days.

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

iShares Floating Rate  vs.  BMO Short Federal

iShares Floating Rate

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Floating Rate are ranked lower than 20 (%) 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 Short Federal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Federal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short 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 Floating and BMO Short

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

The idea behind iShares Floating Rate and BMO Short 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 Stocks Directory module to find actively traded stocks across global markets.