Correlation Between IShares Core and BMO MSCI

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

Diversification Opportunities for IShares Core and BMO MSCI

-0.44

Correlation Coefficient

IShares Core  BMO MSCI

Very good diversification

The 3 months correlation between IShares and BMO is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SPTSX and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE and IShares Core 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 Core SPTSX 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 EAFE has no effect on the direction of IShares Core i.e., IShares Core and BMO MSCI go up and down completely randomly.

Pair Corralation between IShares Core and BMO MSCI

Assuming the 90 days trading horizon iShares Core SPTSX is expected to generate 1.0 times more return on investment than BMO MSCI. However, IShares Core is 1.0 times more volatile than BMO MSCI EAFE. It trades about 0.1 of its potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.08 per unit of risk. If you would invest  2,903  in iShares Core SPTSX on September 16, 2024 and sell it today you would earn a total of  1,141  from holding iShares Core SPTSX or generate 39.3% return on investment over 90 days.

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

iShares Core SPTSX  vs.  BMO MSCI EAFE

iShares Core SPTSX

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SPTSX are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO MSCI 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 Core and BMO MSCI

The main advantage of trading using opposite IShares Core and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SPTSX and BMO MSCI EAFE 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.