Correlation Between BMO Low and IShares MSCI

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Can any of the company-specific risk be diversified away by investing in both BMO Low and IShares MSCI 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 Low and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BMO Low Volatility and iShares MSCI EAFE, you can compare the effects of market volatilities on BMO Low and IShares MSCI 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 Low with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Low and IShares MSCI.

Diversification Opportunities for BMO Low and IShares MSCI

BMOISharesDiversified AwayBMOISharesDiversified Away100%
0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between BMO and IShares is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and BMO Low 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 Low Volatility are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of BMO Low i.e., BMO Low and IShares MSCI go up and down completely randomly.

Pair Corralation between BMO Low and IShares MSCI

Assuming the 90 days trading horizon BMO Low Volatility is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, BMO Low Volatility is 1.14 times less risky than IShares MSCI. The etf trades about -0.05 of its potential returns per unit of risk. The iShares MSCI EAFE is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,601  in iShares MSCI EAFE on September 14, 2024 and sell it today you would earn a total of  91.00  from holding iShares MSCI EAFE or generate 2.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.44%
ValuesDaily Returns

BMO Low Volatility  vs.  iShares MSCI EAFE

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -4-202
JavaScript chart by amCharts 3.21.15ZLI XIN
       Timeline  
BMO Low Volatility 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BMO Low Volatility has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, BMO Low is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec25.225.425.625.82626.226.426.6
iShares MSCI EAFE 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec35.83636.236.436.636.83737.237.4

BMO Low and IShares MSCI Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.85-0.59-0.33-0.08890.00.08730.320.580.84 0.20.40.60.81.01.21.4
JavaScript chart by amCharts 3.21.15ZLI XIN
       Returns  

Pair Trading with BMO Low and IShares MSCI

The main advantage of trading using opposite BMO Low and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Low position performs unexpectedly, IShares MSCI 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 MSCI will offset losses from the drop in IShares MSCI's long position.
The idea behind BMO Low Volatility and iShares MSCI EAFE 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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