Correlation Between BMO Short and IShares Canadian

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

Diversification Opportunities for BMO Short and IShares Canadian

0.99

Correlation Coefficient

BMO Short  IShares Canadian

No risk reduction

The 3 months correlation between BMO and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Federal and iShares Canadian Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Short and BMO Short 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 Short Federal 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 Short has no effect on the direction of BMO Short i.e., BMO Short and IShares Canadian go up and down completely randomly.

Pair Corralation between BMO Short and IShares Canadian

Assuming the 90 days trading horizon BMO Short is expected to generate 1.04 times less return on investment than IShares Canadian. In addition to that, BMO Short is 1.12 times more volatile than iShares Canadian Short. It trades about 0.15 of its total potential returns per unit of risk. iShares Canadian Short is currently generating about 0.18 per unit of volatility. If you would invest  2,658  in iShares Canadian Short on December 29, 2024 and sell it today you would earn a total of  44.00  from holding iShares Canadian Short or generate 1.66% return on investment over 90 days.

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

BMO Short Federal  vs.  iShares Canadian Short

BMO Short Federal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Federal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Short is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Canadian Short

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Short are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian 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 Short and IShares Canadian

The main advantage of trading using opposite BMO Short and IShares Canadian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short 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 Short Federal and iShares Canadian Short 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..