Correlation Between IShares MSCI and BMO International

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

Diversification Opportunities for IShares MSCI and BMO International

0.96

Correlation Coefficient

IShares MSCI  BMO International

Almost no diversification

The 3 months correlation between IShares and BMO is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and BMO International Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO International has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO International go up and down completely randomly.

Pair Corralation between IShares MSCI and BMO International

Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.49 times less return on investment than BMO International. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.36 times less risky than BMO International. It trades about 0.2 of its potential returns per unit of risk. BMO International Dividend is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,472  in BMO International Dividend on November 29, 2024 and sell it today you would earn a total of  90.00  from holding BMO International Dividend or generate 3.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

iShares MSCI EAFE  vs.  BMO International Dividend

iShares MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in March 2025.

BMO International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO International Dividend are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, BMO International may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with IShares MSCI and BMO International

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

The idea behind iShares MSCI EAFE and BMO International Dividend 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.