Correlation Between IShares SP and BMO Global

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

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

Diversification Opportunities for IShares SP and BMO Global

0.7

Correlation Coefficient

IShares SP  BMO Global

Poor diversification

The 3 months correlation between IShares and BMO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Global and BMO Global Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Infrastructure and IShares SP 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 iShares SP Global are associated (or correlated) with BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Infrastructure has no effect on the direction of IShares SP i.e., IShares SP and BMO Global go up and down completely randomly.

Pair Corralation between IShares SP and BMO Global

Assuming the 90 days trading horizon iShares SP Global is expected to generate 1.26 times more return on investment than BMO Global. However, IShares SP is 1.26 times more volatile than BMO Global Infrastructure. It trades about 0.28 of its potential returns per unit of risk. BMO Global Infrastructure is currently generating about 0.1 per unit of risk. If you would invest  5,244  in iShares SP Global on September 15, 2024 and sell it today you would earn a total of  938.00  from holding iShares SP Global or generate 17.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

iShares SP Global  vs.  BMO Global Infrastructure

iShares SP Global

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Global are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, IShares SP displayed solid returns over the last few months and may actually be approaching a breakup point.

BMO Global Infrastructure

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with IShares SP and BMO Global

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

The idea behind iShares SP Global and BMO Global Infrastructure 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.