Correlation Between IShares NASDAQ and BMO MSCI

Can any of the company-specific risk be diversified away by investing in both IShares NASDAQ 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 NASDAQ 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 NASDAQ 100 and BMO MSCI USA, you can compare the effects of market volatilities on IShares NASDAQ 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 NASDAQ with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares NASDAQ and BMO MSCI.

Diversification Opportunities for IShares NASDAQ and BMO MSCI

0.95

Correlation Coefficient

IShares NASDAQ  BMO MSCI

Almost no diversification

The 3 months correlation between IShares and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares NASDAQ 100 and BMO MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI USA and IShares NASDAQ 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 NASDAQ 100 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 USA has no effect on the direction of IShares NASDAQ i.e., IShares NASDAQ and BMO MSCI go up and down completely randomly.

Pair Corralation between IShares NASDAQ and BMO MSCI

Assuming the 90 days trading horizon iShares NASDAQ 100 is expected to generate 1.39 times more return on investment than BMO MSCI. However, IShares NASDAQ is 1.39 times more volatile than BMO MSCI USA. It trades about 0.11 of its potential returns per unit of risk. BMO MSCI USA is currently generating about 0.15 per unit of risk. If you would invest  4,980  in iShares NASDAQ 100 on October 6, 2024 and sell it today you would earn a total of  369.00  from holding iShares NASDAQ 100 or generate 7.41% return on investment over 90 days.

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

iShares NASDAQ 100  vs.  BMO MSCI USA

iShares NASDAQ 100

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BMO MSCI USA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares NASDAQ and BMO MSCI

The main advantage of trading using opposite IShares NASDAQ and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares NASDAQ 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 NASDAQ 100 and BMO MSCI USA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.