Correlation Between BMO MSCI and IShares MSCI

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

By analyzing existing cross correlation between BMO MSCI Emerging and iShares MSCI Europe, you can compare the effects of market volatilities on BMO MSCI and IShares MSCI 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 MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and IShares MSCI.

Diversification Opportunities for BMO MSCI and IShares MSCI

0.28

Correlation Coefficient

BMO MSCI  IShares MSCI

Modest diversification

The 3 months correlation between BMO and IShares is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI Emerging and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe 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 Emerging are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Europe has no effect on the direction of BMO MSCI i.e., BMO MSCI and IShares MSCI go up and down completely randomly.

Pair Corralation between BMO MSCI and IShares MSCI

Assuming the 90 days trading horizon BMO MSCI Emerging is expected to generate 1.68 times more return on investment than IShares MSCI. However, BMO MSCI is 1.68 times more volatile than iShares MSCI Europe. It trades about 0.21 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.35 per unit of risk. If you would invest  2,196  in BMO MSCI Emerging on September 16, 2024 and sell it today you would earn a total of  73.00  from holding BMO MSCI Emerging or generate 3.32% return on investment over 90 days.

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

BMO MSCI Emerging  vs.  iShares MSCI Europe

BMO MSCI Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI Emerging are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, BMO MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind BMO MSCI Emerging and iShares MSCI Europe 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.