Correlation Between BMO Aggregate and IShares Fundamental

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

By analyzing existing cross correlation between BMO Aggregate Bond and iShares Fundamental Hedged, you can compare the effects of market volatilities on BMO Aggregate and IShares Fundamental 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 Aggregate with a short position of IShares Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Aggregate and IShares Fundamental.

Diversification Opportunities for BMO Aggregate and IShares Fundamental

-0.05

Correlation Coefficient

BMO Aggregate  IShares Fundamental

Good diversification

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

Pair Corralation between BMO Aggregate and IShares Fundamental

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to generate 0.44 times more return on investment than IShares Fundamental. However, BMO Aggregate Bond is 2.26 times less risky than IShares Fundamental. It trades about 0.07 of its potential returns per unit of risk. iShares Fundamental Hedged is currently generating about -0.01 per unit of risk. If you would invest  2,979  in BMO Aggregate Bond on December 30, 2024 and sell it today you would earn a total of  47.00  from holding BMO Aggregate Bond or generate 1.58% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  iShares Fundamental Hedged

BMO Aggregate Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Fundamental Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Fundamental 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 Aggregate and IShares Fundamental

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

The idea behind BMO Aggregate Bond and iShares Fundamental Hedged 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.