Correlation Between IShares Core and BMO Mid

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

By analyzing existing cross correlation between iShares Core Canadian and BMO Mid Provincial, you can compare the effects of market volatilities on IShares Core and BMO Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and BMO Mid.

Diversification Opportunities for IShares Core and BMO Mid

0.88

Correlation Coefficient

IShares Core  BMO Mid

Very poor diversification

The 3 months correlation between IShares and BMO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Canadian and BMO Mid Provincial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Mid Provincial 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 Canadian are associated (or correlated) with BMO Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Mid Provincial has no effect on the direction of IShares Core i.e., IShares Core and BMO Mid go up and down completely randomly.

Pair Corralation between IShares Core and BMO Mid

Assuming the 90 days trading horizon iShares Core Canadian is expected to generate 1.91 times more return on investment than BMO Mid. However, IShares Core is 1.91 times more volatile than BMO Mid Provincial. It trades about -0.01 of its potential returns per unit of risk. BMO Mid Provincial is currently generating about -0.04 per unit of risk. If you would invest  1,991  in iShares Core Canadian on September 15, 2024 and sell it today you would lose (13.00) from holding iShares Core Canadian or give up 0.65% of portfolio value over 90 days.

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

iShares Core Canadian  vs.  BMO Mid Provincial

iShares Core Canadian

Risk-Adjusted Performance

0 of 100

Very Weak

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

BMO Mid Provincial

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind iShares Core Canadian and BMO Mid Provincial 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.