Correlation Between BMO MSCI and IShares Canadian

Can any of the company-specific risk be diversified away by investing in both BMO MSCI 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 MSCI 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 MSCI EAFE and iShares Canadian Value, you can compare the effects of market volatilities on BMO MSCI 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 MSCI with a short position of IShares Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and IShares Canadian.

Diversification Opportunities for BMO MSCI and IShares Canadian

-0.17

Correlation Coefficient

BMO MSCI  IShares Canadian

Good diversification

The 3 months correlation between BMO and IShares is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and iShares Canadian Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Value 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 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 Value has no effect on the direction of BMO MSCI i.e., BMO MSCI and IShares Canadian go up and down completely randomly.

Pair Corralation between BMO MSCI and IShares Canadian

Assuming the 90 days trading horizon BMO MSCI is expected to generate 1.21 times less return on investment than IShares Canadian. But when comparing it to its historical volatility, BMO MSCI EAFE is 1.1 times less risky than IShares Canadian. It trades about 0.08 of its potential returns per unit of risk. iShares Canadian Value is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,947  in iShares Canadian Value on September 5, 2024 and sell it today you would earn a total of  1,098  from holding iShares Canadian Value or generate 37.26% 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.  iShares Canadian Value

BMO MSCI EAFE

Risk-Adjusted Performance

3 of 100

Insignificant

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.

iShares Canadian Value

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Value are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO MSCI and IShares Canadian

The main advantage of trading using opposite BMO MSCI and IShares Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO MSCI 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 MSCI EAFE and iShares Canadian Value 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..