Correlation Between IShares Core and BMO Balanced

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

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

Diversification Opportunities for IShares Core and BMO Balanced

0.99

Correlation Coefficient

IShares Core  BMO Balanced

No risk reduction

The 3 months correlation between IShares and BMO is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Conservative and BMO Balanced ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Balanced ETF and IShares Core 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 Core Conservative are associated (or correlated) with BMO Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Balanced ETF has no effect on the direction of IShares Core i.e., IShares Core and BMO Balanced go up and down completely randomly.

Pair Corralation between IShares Core and BMO Balanced

Assuming the 90 days trading horizon IShares Core is expected to generate 1.35 times less return on investment than BMO Balanced. But when comparing it to its historical volatility, iShares Core Conservative is 1.24 times less risky than BMO Balanced. It trades about 0.18 of its potential returns per unit of risk. BMO Balanced ETF is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,935  in BMO Balanced ETF on September 18, 2024 and sell it today you would earn a total of  173.00  from holding BMO Balanced ETF or generate 4.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares Core Conservative  vs.  BMO Balanced ETF

iShares Core Conservative

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Conservative are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Balanced ETF

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ETF are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Balanced 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 Core and BMO Balanced

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

The idea behind iShares Core Conservative and BMO Balanced ETF 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.