Correlation Between BMO MSCI and BMO Global

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

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

Diversification Opportunities for BMO MSCI and BMO Global

-0.78

Correlation Coefficient

BMO MSCI  BMO Global

Pay attention - limited upside

The 3 months correlation between BMO and BMO is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI Europe and BMO Global Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Infrastructure 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 Europe are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Infrastructure has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO Global go up and down completely randomly.

Pair Corralation between BMO MSCI and BMO Global

Assuming the 90 days trading horizon BMO MSCI Europe is expected to under-perform the BMO Global. But the etf apears to be less risky and, when comparing its historical volatility, BMO MSCI Europe is 1.06 times less risky than BMO Global. The etf trades about -0.06 of its potential returns per unit of risk. The BMO Global Infrastructure is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,856  in BMO Global Infrastructure on September 12, 2024 and sell it today you would earn a total of  357.00  from holding BMO Global Infrastructure or generate 7.35% return on investment over 90 days.

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

BMO MSCI Europe  vs.  BMO Global Infrastructure

BMO MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BMO Global Infrastructure

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Infrastructure are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, BMO Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO MSCI and BMO Global

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

The idea behind BMO MSCI Europe and BMO Global Infrastructure 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.