Correlation Between BMO MSCI and IShares Floating

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

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

Diversification Opportunities for BMO MSCI and IShares Floating

0.88

Correlation Coefficient

BMO MSCI  IShares Floating

Very poor diversification

The 3 months correlation between BMO and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI USA and iShares Floating Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Floating Rate 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 USA are associated (or correlated) with IShares Floating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Floating Rate has no effect on the direction of BMO MSCI i.e., BMO MSCI and IShares Floating go up and down completely randomly.

Pair Corralation between BMO MSCI and IShares Floating

Assuming the 90 days trading horizon BMO MSCI USA is expected to generate 13.81 times more return on investment than IShares Floating. However, BMO MSCI is 13.81 times more volatile than iShares Floating Rate. It trades about 0.14 of its potential returns per unit of risk. iShares Floating Rate is currently generating about 0.33 per unit of risk. If you would invest  5,988  in BMO MSCI USA on October 4, 2024 and sell it today you would earn a total of  2,887  from holding BMO MSCI USA or generate 48.21% return on investment over 90 days.

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

BMO MSCI USA  vs.  iShares Floating Rate

BMO MSCI USA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI USA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Floating Rate

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Floating Rate are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Floating 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 IShares Floating

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

The idea behind BMO MSCI USA and iShares Floating Rate 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.