Correlation Between BMO Long and IShares 1

Can any of the company-specific risk be diversified away by investing in both BMO Long and IShares 1 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 Long and IShares 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMO Long Corporate and iShares 1 10Yr Laddered, you can compare the effects of market volatilities on BMO Long and IShares 1 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 Long with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Long and IShares 1.

Diversification Opportunities for BMO Long and IShares 1

0.87

Correlation Coefficient

BMO Long  IShares 1

Very poor diversification

The 3 months correlation between BMO and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Corporate and iShares 1 10Yr Laddered in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 1 10Yr and BMO Long 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 Long Corporate are associated (or correlated) with IShares 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 1 10Yr has no effect on the direction of BMO Long i.e., BMO Long and IShares 1 go up and down completely randomly.

Pair Corralation between BMO Long and IShares 1

Assuming the 90 days trading horizon BMO Long Corporate is expected to under-perform the IShares 1. In addition to that, BMO Long is 2.64 times more volatile than iShares 1 10Yr Laddered. It trades about -0.3 of its total potential returns per unit of risk. iShares 1 10Yr Laddered is currently generating about -0.18 per unit of volatility. If you would invest  1,787  in iShares 1 10Yr Laddered on October 15, 2024 and sell it today you would lose (13.00) from holding iShares 1 10Yr Laddered or give up 0.73% of portfolio value over 90 days.

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

BMO Long Corporate  vs.  iShares 1 10Yr Laddered

BMO Long Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares 1 10Yr

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 10Yr Laddered are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares 1 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 Long and IShares 1

The main advantage of trading using opposite BMO Long and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Long position performs unexpectedly, IShares 1 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 1 will offset losses from the drop in IShares 1's long position.

The idea behind BMO Long Corporate and iShares 1 10Yr Laddered 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.