Correlation Between BMO MSCI and Global Dividend

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

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

Diversification Opportunities for BMO MSCI and Global Dividend

0.85

Correlation Coefficient

BMO MSCI  Global Dividend

Very poor diversification

The 3 months correlation between BMO and Global is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI All and Global Dividend Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Dividend Growth 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 All are associated (or correlated) with Global Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Dividend Growth has no effect on the direction of BMO MSCI i.e., BMO MSCI and Global Dividend go up and down completely randomly.

Pair Corralation between BMO MSCI and Global Dividend

Assuming the 90 days trading horizon BMO MSCI is expected to generate 2.12 times less return on investment than Global Dividend. But when comparing it to its historical volatility, BMO MSCI All is 1.4 times less risky than Global Dividend. It trades about 0.18 of its potential returns per unit of risk. Global Dividend Growth is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,014  in Global Dividend Growth on September 4, 2024 and sell it today you would earn a total of  190.00  from holding Global Dividend Growth or generate 18.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

BMO MSCI All  vs.  Global Dividend Growth

BMO MSCI All

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI All are ranked lower than 14 (%) 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 January 2025.

Global Dividend Growth

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Dividend Growth are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global Dividend displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO MSCI and Global Dividend

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

The idea behind BMO MSCI All and Global Dividend Growth 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.