Correlation Between BMO Covered and IShares SP

Can any of the company-specific risk be diversified away by investing in both BMO Covered and IShares SP 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 SP 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 SP Global, you can compare the effects of market volatilities on BMO Covered and IShares SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and IShares SP.

Diversification Opportunities for BMO Covered and IShares SP

0.01

Correlation Coefficient

BMO Covered  IShares SP

Significant diversification

The 3 months correlation between BMO and IShares is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call and iShares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Global 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Global has no effect on the direction of BMO Covered i.e., BMO Covered and IShares SP go up and down completely randomly.

Pair Corralation between BMO Covered and IShares SP

Assuming the 90 days trading horizon BMO Covered is expected to generate 2.63 times less return on investment than IShares SP. But when comparing it to its historical volatility, BMO Covered Call is 1.61 times less risky than IShares SP. It trades about 0.06 of its potential returns per unit of risk. iShares SP Global is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,112  in iShares SP Global on December 10, 2024 and sell it today you would earn a total of  605.00  from holding iShares SP Global or generate 11.83% return on investment over 90 days.

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

BMO Covered Call  vs.  iShares SP Global

BMO Covered Call

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Covered Call are ranked lower than 5 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

iShares SP Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with BMO Covered and IShares SP

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

The idea behind BMO Covered Call and iShares SP Global 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.