Correlation Between BMO MSCI and First Asset

Can any of the company-specific risk be diversified away by investing in both BMO MSCI and First Asset 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 First Asset 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 First Asset Morningstar, you can compare the effects of market volatilities on BMO MSCI and First Asset 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 First Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and First Asset.

Diversification Opportunities for BMO MSCI and First Asset

0.67

Correlation Coefficient

BMO MSCI  First Asset

Poor diversification

The 3 months correlation between BMO and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI EAFE and First Asset Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Asset Morningstar 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 First Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Asset Morningstar has no effect on the direction of BMO MSCI i.e., BMO MSCI and First Asset go up and down completely randomly.

Pair Corralation between BMO MSCI and First Asset

Assuming the 90 days trading horizon BMO MSCI EAFE is expected to generate 0.72 times more return on investment than First Asset. However, BMO MSCI EAFE is 1.39 times less risky than First Asset. It trades about 0.22 of its potential returns per unit of risk. First Asset Morningstar is currently generating about 0.1 per unit of risk. If you would invest  2,299  in BMO MSCI EAFE on December 28, 2024 and sell it today you would earn a total of  220.00  from holding BMO MSCI EAFE or generate 9.57% return on investment over 90 days.

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

BMO MSCI EAFE  vs.  First Asset Morningstar

BMO MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI EAFE are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Asset Morningstar

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Asset Morningstar are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, First Asset is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO MSCI and First Asset

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

The idea behind BMO MSCI EAFE and First Asset Morningstar 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.