Correlation Between BMO Long and IShares MSCI

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

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

Diversification Opportunities for BMO Long and IShares MSCI

-0.06

Correlation Coefficient

BMO Long  IShares MSCI

Good diversification

The 3 months correlation between BMO and IShares is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding BMO Long Federal and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging and BMO Long 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 Long Federal are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Emerging has no effect on the direction of BMO Long i.e., BMO Long and IShares MSCI go up and down completely randomly.

Pair Corralation between BMO Long and IShares MSCI

Assuming the 90 days trading horizon BMO Long is expected to generate 3.56 times less return on investment than IShares MSCI. In addition to that, BMO Long is 1.46 times more volatile than iShares MSCI Emerging. It trades about 0.02 of its total potential returns per unit of risk. iShares MSCI Emerging is currently generating about 0.08 per unit of volatility. If you would invest  5,291  in iShares MSCI Emerging on August 26, 2024 and sell it today you would earn a total of  672.00  from holding iShares MSCI Emerging or generate 12.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

BMO Long Federal  vs.  iShares MSCI Emerging

BMO Long Federal

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable primary indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with BMO Long and IShares MSCI

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

The idea behind BMO Long Federal and iShares MSCI Emerging 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.