Correlation Between IShares Core and BMO Premium

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

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

Diversification Opportunities for IShares Core and BMO Premium

0.91

Correlation Coefficient

IShares Core  BMO Premium

Almost no diversification

The 3 months correlation between IShares and BMO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and BMO Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Premium Yield 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 SP are associated (or correlated) with BMO Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Premium Yield has no effect on the direction of IShares Core i.e., IShares Core and BMO Premium go up and down completely randomly.

Pair Corralation between IShares Core and BMO Premium

Assuming the 90 days trading horizon iShares Core SP is expected to generate 1.64 times more return on investment than BMO Premium. However, IShares Core is 1.64 times more volatile than BMO Premium Yield. It trades about 0.2 of its potential returns per unit of risk. BMO Premium Yield is currently generating about 0.22 per unit of risk. If you would invest  5,775  in iShares Core SP on September 2, 2024 and sell it today you would earn a total of  530.00  from holding iShares Core SP or generate 9.18% return on investment over 90 days.

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

iShares Core SP  vs.  BMO Premium Yield

iShares Core SP

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BMO Premium Yield

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Premium Yield are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Premium 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 Premium

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

The idea behind iShares Core SP and BMO Premium Yield 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.