Correlation Between IShares MSCI and BMO Low

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

By analyzing existing cross correlation between iShares MSCI EAFE and BMO Low Volatility, you can compare the effects of market volatilities on IShares MSCI and BMO Low 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 Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and BMO Low.

Diversification Opportunities for IShares MSCI and BMO Low

0.53

Correlation Coefficient

IShares MSCI  BMO Low

Very weak diversification

The 3 months correlation between IShares and BMO is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and BMO Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Low Volatility 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 EAFE are associated (or correlated) with BMO Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Low Volatility has no effect on the direction of IShares MSCI i.e., IShares MSCI and BMO Low go up and down completely randomly.

Pair Corralation between IShares MSCI and BMO Low

Assuming the 90 days trading horizon iShares MSCI EAFE is expected to generate 1.1 times more return on investment than BMO Low. However, IShares MSCI is 1.1 times more volatile than BMO Low Volatility. It trades about 0.06 of its potential returns per unit of risk. BMO Low Volatility is currently generating about -0.02 per unit of risk. If you would invest  3,601  in iShares MSCI EAFE on September 15, 2024 and sell it today you would earn a total of  85.00  from holding iShares MSCI EAFE or generate 2.36% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  BMO Low Volatility

iShares MSCI EAFE

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO Low Volatility

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Low Volatility has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, BMO Low 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 MSCI and BMO Low

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

The idea behind iShares MSCI EAFE and BMO Low Volatility 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.