Correlation Between IShares Global and BMO Global

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

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

Diversification Opportunities for IShares Global and BMO Global

-0.89

Correlation Coefficient

IShares Global  BMO Global

Pay attention - limited upside

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 Global Healthcare and BMO Global Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Communications and IShares Global 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 Global Healthcare are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Communications has no effect on the direction of IShares Global i.e., IShares Global and BMO Global go up and down completely randomly.

Pair Corralation between IShares Global and BMO Global

Assuming the 90 days trading horizon iShares Global Healthcare is expected to under-perform the BMO Global. But the etf apears to be less risky and, when comparing its historical volatility, iShares Global Healthcare is 1.21 times less risky than BMO Global. The etf trades about -0.2 of its potential returns per unit of risk. The BMO Global Communications is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,549  in BMO Global Communications on September 3, 2024 and sell it today you would earn a total of  492.00  from holding BMO Global Communications or generate 13.86% return on investment over 90 days.

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

iShares Global Healthcare  vs.  BMO Global Communications

iShares Global Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

BMO Global Communications

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Communications are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, BMO Global displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Global and BMO Global

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

The idea behind iShares Global Healthcare and BMO Global Communications 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.