Correlation Between BMO Discount and IShares 1

Can any of the company-specific risk be diversified away by investing in both BMO Discount and IShares 1 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 Discount and IShares 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Discount Bond and iShares 1 10Yr Laddered, you can compare the effects of market volatilities on BMO Discount and IShares 1 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 Discount with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Discount and IShares 1.

Diversification Opportunities for BMO Discount and IShares 1

0.94

Correlation Coefficient

BMO Discount  IShares 1

Almost no diversification

The 3 months correlation between BMO and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding BMO Discount Bond and iShares 1 10Yr Laddered in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 1 10Yr and BMO Discount 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 Discount Bond are associated (or correlated) with IShares 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 1 10Yr has no effect on the direction of BMO Discount i.e., BMO Discount and IShares 1 go up and down completely randomly.

Pair Corralation between BMO Discount and IShares 1

Assuming the 90 days trading horizon BMO Discount is expected to generate 1.24 times less return on investment than IShares 1. In addition to that, BMO Discount is 1.5 times more volatile than iShares 1 10Yr Laddered. It trades about 0.07 of its total potential returns per unit of risk. iShares 1 10Yr Laddered is currently generating about 0.12 per unit of volatility. If you would invest  1,719  in iShares 1 10Yr Laddered on December 2, 2024 and sell it today you would earn a total of  33.00  from holding iShares 1 10Yr Laddered or generate 1.92% return on investment over 90 days.

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

BMO Discount Bond  vs.  iShares 1 10Yr Laddered

BMO Discount Bond

Risk-Adjusted Performance

Modest

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

iShares 1 10Yr

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 10Yr Laddered are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IShares 1 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 Discount and IShares 1

The main advantage of trading using opposite BMO Discount and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Discount position performs unexpectedly, IShares 1 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 1 will offset losses from the drop in IShares 1's long position.

The idea behind BMO Discount Bond and iShares 1 10Yr Laddered 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.