Correlation Between BMO Equal and BMO MSCI

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

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

Diversification Opportunities for BMO Equal and BMO MSCI

-0.57

Correlation Coefficient

BMO Equal  BMO MSCI

Excellent diversification

The 3 months correlation between BMO and BMO is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and BMO MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI China and BMO Equal 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 Equal Weight are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI China has no effect on the direction of BMO Equal i.e., BMO Equal and BMO MSCI go up and down completely randomly.

Pair Corralation between BMO Equal and BMO MSCI

Assuming the 90 days trading horizon BMO Equal Weight is expected to under-perform the BMO MSCI. But the etf apears to be less risky and, when comparing its historical volatility, BMO Equal Weight is 1.32 times less risky than BMO MSCI. The etf trades about -0.04 of its potential returns per unit of risk. The BMO MSCI China is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,551  in BMO MSCI China on December 28, 2024 and sell it today you would earn a total of  391.00  from holding BMO MSCI China or generate 25.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BMO Equal Weight  vs.  BMO MSCI China

BMO Equal Weight

Risk-Adjusted Performance

Very Weak

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

BMO MSCI China

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI China are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, BMO MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Equal and BMO MSCI

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

The idea behind BMO Equal Weight and BMO MSCI China 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.