Correlation Between IShares MSCI and BMO Core

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

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

Diversification Opportunities for IShares MSCI and BMO Core

0.27

Correlation Coefficient

IShares MSCI  BMO Core

Modest diversification

The 3 months correlation between IShares and BMO is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and BMO Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Core Plus and IShares MSCI 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 MSCI EAFE are associated (or correlated) with BMO Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Core Plus has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO Core go up and down completely randomly.

Pair Corralation between IShares MSCI and BMO Core

Assuming the 90 days trading horizon iShares MSCI EAFE is expected to under-perform the BMO Core. In addition to that, IShares MSCI is 1.41 times more volatile than BMO Core Plus. It trades about -0.02 of its total potential returns per unit of risk. BMO Core Plus is currently generating about 0.07 per unit of volatility. If you would invest  2,766  in BMO Core Plus on October 7, 2024 and sell it today you would earn a total of  45.00  from holding BMO Core Plus or generate 1.63% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  BMO Core Plus

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

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

BMO Core Plus

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Core Plus are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Core 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 MSCI and BMO Core

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

The idea behind iShares MSCI EAFE and BMO Core Plus 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.