Correlation Between BMO MSCI and BMO Equal

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

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

Diversification Opportunities for BMO MSCI and BMO Equal

-0.05

Correlation Coefficient

BMO MSCI  BMO Equal

Good diversification

The 3 months correlation between BMO and BMO is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI India and BMO Equal Weight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Equal Weight 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 India are associated (or correlated) with BMO Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Equal Weight has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO Equal go up and down completely randomly.

Pair Corralation between BMO MSCI and BMO Equal

Assuming the 90 days trading horizon BMO MSCI India is expected to under-perform the BMO Equal. But the etf apears to be less risky and, when comparing its historical volatility, BMO MSCI India is 1.11 times less risky than BMO Equal. The etf trades about -0.09 of its potential returns per unit of risk. The BMO Equal Weight is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,209  in BMO Equal Weight on December 27, 2024 and sell it today you would earn a total of  63.00  from holding BMO Equal Weight or generate 2.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

BMO MSCI India  vs.  BMO Equal Weight

BMO MSCI India

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO MSCI India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental 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 Equal Weight

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Equal Weight are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Equal 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 BMO Equal

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

The idea behind BMO MSCI India and BMO Equal Weight 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.