Correlation Between BMO MSCI and Global X

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

By analyzing existing cross correlation between BMO MSCI EAFE and Global X SPTSX, you can compare the effects of market volatilities on BMO MSCI and Global X 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 MSCI with a short position of Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and Global X.

Diversification Opportunities for BMO MSCI and Global X

-0.15

Correlation Coefficient

BMO MSCI  Global X

Good diversification

The 3 months correlation between BMO and Global is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and Global X SPTSX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X SPTSX and BMO MSCI 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 MSCI EAFE are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X SPTSX has no effect on the direction of BMO MSCI i.e., BMO MSCI and Global X go up and down completely randomly.

Pair Corralation between BMO MSCI and Global X

Assuming the 90 days trading horizon BMO MSCI is expected to generate 1.72 times less return on investment than Global X. In addition to that, BMO MSCI is 1.57 times more volatile than Global X SPTSX. It trades about 0.13 of its total potential returns per unit of risk. Global X SPTSX is currently generating about 0.36 per unit of volatility. If you would invest  6,443  in Global X SPTSX on September 12, 2024 and sell it today you would earn a total of  206.00  from holding Global X SPTSX or generate 3.2% return on investment over 90 days.

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

BMO MSCI EAFE  vs.  Global X SPTSX

BMO MSCI EAFE

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI EAFE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Global X SPTSX

Risk-Adjusted Performance

24 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Global X SPTSX are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO MSCI and Global X

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

The idea behind BMO MSCI EAFE and Global X SPTSX 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.