Correlation Between IShares MSCI and BMO MSCI

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

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

Diversification Opportunities for IShares MSCI and BMO MSCI

0.92

Correlation Coefficient

IShares MSCI  BMO MSCI

Almost no diversification

The 3 months correlation between IShares and BMO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and BMO MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI China and IShares MSCI 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 MSCI Emerging are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI China has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and BMO MSCI

Assuming the 90 days trading horizon IShares MSCI is expected to generate 2.74 times less return on investment than BMO MSCI. But when comparing it to its historical volatility, iShares MSCI Emerging is 2.9 times less risky than BMO MSCI. It trades about 0.11 of its potential returns per unit of risk. BMO MSCI China is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,319  in BMO MSCI China on September 16, 2024 and sell it today you would earn a total of  263.00  from holding BMO MSCI China or generate 19.94% return on investment over 90 days.

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

iShares MSCI Emerging  vs.  BMO MSCI China

iShares MSCI Emerging

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Emerging are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO MSCI China

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI China are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, BMO MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and BMO MSCI

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

The idea behind iShares MSCI Emerging and BMO MSCI China 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .