Correlation Between BMO MSCI and CI Europe

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

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

Diversification Opportunities for BMO MSCI and CI Europe

0.75

Correlation Coefficient

BMO MSCI  CI Europe

Poor diversification

The 3 months correlation between BMO and EHE is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI Europe and CI Europe Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI Europe Hedged and BMO 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 BMO MSCI Europe are associated (or correlated) with CI Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI Europe Hedged has no effect on the direction of BMO MSCI i.e., BMO MSCI and CI Europe go up and down completely randomly.

Pair Corralation between BMO MSCI and CI Europe

Assuming the 90 days trading horizon BMO MSCI Europe is expected to under-perform the CI Europe. But the etf apears to be less risky and, when comparing its historical volatility, BMO MSCI Europe is 1.25 times less risky than CI Europe. The etf trades about -0.05 of its potential returns per unit of risk. The CI Europe Hedged is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,296  in CI Europe Hedged on September 16, 2024 and sell it today you would lose (73.00) from holding CI Europe Hedged or give up 2.21% of portfolio value over 90 days.

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

BMO MSCI Europe  vs.  CI Europe Hedged

BMO MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CI Europe Hedged

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with BMO MSCI and CI Europe

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

The idea behind BMO MSCI Europe and CI Europe Hedged 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.