Correlation Between IShares Core and BMO Canadian

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

Diversification Opportunities for IShares Core and BMO Canadian

0.84

Correlation Coefficient

IShares Core  BMO Canadian

Very poor diversification

The 3 months correlation between IShares and BMO is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SPTSX and BMO Canadian High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian High 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 Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian High has no effect on the direction of IShares Core i.e., IShares Core and BMO Canadian go up and down completely randomly.

Pair Corralation between IShares Core and BMO Canadian

Assuming the 90 days trading horizon IShares Core is expected to generate 1.87 times less return on investment than BMO Canadian. In addition to that, IShares Core is 1.43 times more volatile than BMO Canadian High. It trades about 0.03 of its total potential returns per unit of risk. BMO Canadian High is currently generating about 0.08 per unit of volatility. If you would invest  1,741  in BMO Canadian High on December 29, 2024 and sell it today you would earn a total of  47.00  from holding BMO Canadian High or generate 2.7% return on investment over 90 days.

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

iShares Core SPTSX  vs.  BMO Canadian High

iShares Core SPTSX

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SPTSX are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Canadian High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Canadian 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 Canadian

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

The idea behind iShares Core SPTSX and BMO Canadian High 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.