Correlation Between BMO Aggregate and IShares Premium

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

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

Diversification Opportunities for BMO Aggregate and IShares Premium

0.77

Correlation Coefficient

BMO Aggregate  IShares Premium

Poor diversification

The 3 months correlation between BMO and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares Premium Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Premium Money and BMO Aggregate 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 BMO Aggregate Bond are associated (or correlated) with IShares Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Premium Money has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares Premium go up and down completely randomly.

Pair Corralation between BMO Aggregate and IShares Premium

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 23.25 times more return on investment than IShares Premium. However, BMO Aggregate is 23.25 times more volatile than iShares Premium Money. It trades about 0.07 of its potential returns per unit of risk. iShares Premium Money is currently generating about 0.78 per unit of risk. If you would invest  1,382  in BMO Aggregate Bond on December 29, 2024 and sell it today you would earn a total of  21.00  from holding BMO Aggregate Bond or generate 1.52% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  iShares Premium Money

BMO Aggregate Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Premium Money

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Premium Money are ranked lower than 61 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Premium is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Aggregate and IShares Premium

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

The idea behind BMO Aggregate Bond and iShares Premium Money 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.