Correlation Between IShares Canadian and BMO Canadian

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

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

Diversification Opportunities for IShares Canadian and BMO Canadian

0.97

Correlation Coefficient

IShares Canadian  BMO Canadian

Almost no diversification

The 3 months correlation between IShares and BMO is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Select and BMO Canadian High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Canadian High and IShares Canadian 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 Canadian Select are associated (or correlated) with BMO Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Canadian High has no effect on the direction of IShares Canadian i.e., IShares Canadian and BMO Canadian go up and down completely randomly.

Pair Corralation between IShares Canadian and BMO Canadian

Assuming the 90 days trading horizon iShares Canadian Select is expected to generate 1.07 times more return on investment than BMO Canadian. However, IShares Canadian is 1.07 times more volatile than BMO Canadian High. It trades about 0.41 of its potential returns per unit of risk. BMO Canadian High is currently generating about 0.25 per unit of risk. If you would invest  2,935  in iShares Canadian Select on August 31, 2024 and sell it today you would earn a total of  318.00  from holding iShares Canadian Select or generate 10.83% return on investment over 90 days.

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

iShares Canadian Select  vs.  BMO Canadian High

iShares Canadian Select

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Select are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Canadian may actually be approaching a critical reversion point that can send shares even higher in December 2024.

BMO Canadian High

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian High are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Canadian 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 Canadian and BMO Canadian

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

The idea behind iShares Canadian Select and BMO Canadian High 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.