Correlation Between BMO Balanced and IShares ESG

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

By analyzing existing cross correlation between BMO Balanced ESG and iShares ESG Equity, you can compare the effects of market volatilities on BMO Balanced and IShares ESG 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 Balanced with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Balanced and IShares ESG.

Diversification Opportunities for BMO Balanced and IShares ESG

0.91

Correlation Coefficient

BMO Balanced  IShares ESG

Almost no diversification

The 3 months correlation between BMO and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding BMO Balanced ESG and iShares ESG Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Equity and BMO Balanced 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 Balanced ESG are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Equity has no effect on the direction of BMO Balanced i.e., BMO Balanced and IShares ESG go up and down completely randomly.

Pair Corralation between BMO Balanced and IShares ESG

Assuming the 90 days trading horizon BMO Balanced ESG is expected to generate 0.63 times more return on investment than IShares ESG. However, BMO Balanced ESG is 1.59 times less risky than IShares ESG. It trades about -0.01 of its potential returns per unit of risk. iShares ESG Equity is currently generating about -0.04 per unit of risk. If you would invest  3,823  in BMO Balanced ESG on December 29, 2024 and sell it today you would lose (18.00) from holding BMO Balanced ESG or give up 0.47% of portfolio value over 90 days.

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

BMO Balanced ESG  vs.  iShares ESG Equity

BMO Balanced ESG

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Balanced ESG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO Balanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares ESG Equity

Risk-Adjusted Performance

Very Weak

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

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

The idea behind BMO Balanced ESG and iShares ESG Equity 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.