Correlation Between BMO Covered and IShares Global

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

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

Diversification Opportunities for BMO Covered and IShares Global

0.67

Correlation Coefficient

BMO Covered  IShares Global

Poor diversification

The 3 months correlation between BMO and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and iShares Global Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Water and BMO Covered 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 Covered Call are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Water has no effect on the direction of BMO Covered i.e., BMO Covered and IShares Global go up and down completely randomly.

Pair Corralation between BMO Covered and IShares Global

Assuming the 90 days trading horizon BMO Covered is expected to generate 1.28 times less return on investment than IShares Global. But when comparing it to its historical volatility, BMO Covered Call is 1.24 times less risky than IShares Global. It trades about 0.11 of its potential returns per unit of risk. iShares Global Water is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,772  in iShares Global Water on September 3, 2024 and sell it today you would earn a total of  270.00  from holding iShares Global Water or generate 4.68% return on investment over 90 days.

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

BMO Covered Call  vs.  iShares Global Water

BMO Covered Call

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Covered is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

iShares Global Water

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Water are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BMO Covered and IShares Global

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

The idea behind BMO Covered Call and iShares Global Water 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .