Correlation Between BMO Dow and IShares Core

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

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

Diversification Opportunities for BMO Dow and IShares Core

0.74

Correlation Coefficient

BMO Dow  IShares Core

Poor diversification

The 3 months correlation between BMO and IShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BMO Dow Jones and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and BMO Dow 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 Dow Jones are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of BMO Dow i.e., BMO Dow and IShares Core go up and down completely randomly.

Pair Corralation between BMO Dow and IShares Core

Assuming the 90 days trading horizon BMO Dow Jones is expected to under-perform the IShares Core. But the etf apears to be less risky and, when comparing its historical volatility, BMO Dow Jones is 1.16 times less risky than IShares Core. The etf trades about -0.06 of its potential returns per unit of risk. The iShares Core SP is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6,276  in iShares Core SP on December 2, 2024 and sell it today you would lose (108.00) from holding iShares Core SP or give up 1.72% of portfolio value over 90 days.

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

BMO Dow Jones  vs.  iShares Core SP

BMO Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking indicators, BMO Dow is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Core 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 Dow and IShares Core

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

The idea behind BMO Dow Jones and iShares Core SP 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.