Correlation Between BMO Core and IShares Canadian

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

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

Diversification Opportunities for BMO Core and IShares Canadian

0.97

Correlation Coefficient

BMO Core  IShares Canadian

Almost no diversification

The 3 months correlation between BMO and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding BMO Core Plus and iShares Canadian Universe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Universe and BMO 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 BMO Core Plus are associated (or correlated) with IShares Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian Universe has no effect on the direction of BMO Core i.e., BMO Core and IShares Canadian go up and down completely randomly.

Pair Corralation between BMO Core and IShares Canadian

Assuming the 90 days trading horizon BMO Core is expected to generate 1.04 times less return on investment than IShares Canadian. In addition to that, BMO Core is 1.12 times more volatile than iShares Canadian Universe. It trades about 0.08 of its total potential returns per unit of risk. iShares Canadian Universe is currently generating about 0.09 per unit of volatility. If you would invest  2,813  in iShares Canadian Universe on September 1, 2024 and sell it today you would earn a total of  55.00  from holding iShares Canadian Universe or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

BMO Core Plus  vs.  iShares Canadian Universe

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.

iShares Canadian Universe

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Universe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian 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 Core and IShares Canadian

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

The idea behind BMO Core Plus and iShares Canadian Universe 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.