Correlation Between IShares ESG and BMO Balanced

Can any of the company-specific risk be diversified away by investing in both IShares ESG 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 ESG 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 ESG Aware and BMO Balanced ESG, you can compare the effects of market volatilities on IShares ESG 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 ESG with a short position of BMO Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and BMO Balanced.

Diversification Opportunities for IShares ESG and BMO Balanced

0.95

Correlation Coefficient

IShares ESG  BMO Balanced

Almost no diversification

The 3 months correlation between IShares and BMO is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and BMO Balanced ESG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Balanced ESG and IShares ESG 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 ESG Aware 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 ESG has no effect on the direction of IShares ESG i.e., IShares ESG and BMO Balanced go up and down completely randomly.

Pair Corralation between IShares ESG and BMO Balanced

Assuming the 90 days trading horizon iShares ESG Aware is expected to generate 1.29 times more return on investment than BMO Balanced. However, IShares ESG is 1.29 times more volatile than BMO Balanced ESG. It trades about 0.26 of its potential returns per unit of risk. BMO Balanced ESG is currently generating about 0.22 per unit of risk. If you would invest  2,844  in iShares ESG Aware on September 16, 2024 and sell it today you would earn a total of  246.00  from holding iShares ESG Aware or generate 8.65% return on investment over 90 days.

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

iShares ESG Aware  vs.  BMO Balanced ESG

iShares ESG Aware

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO Balanced ESG

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Balanced ESG are ranked lower than 17 (%) 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 ESG and BMO Balanced

The main advantage of trading using opposite IShares ESG and BMO Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG Aware and BMO Balanced ESG 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..