Correlation Between BMO SIA and BMO MSCI

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

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

Diversification Opportunities for BMO SIA and BMO MSCI

0.92

Correlation Coefficient

BMO SIA  BMO MSCI

Almost no diversification

The 3 months correlation between BMO and BMO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding BMO SIA Focused and BMO MSCI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI Canada and BMO SIA 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 SIA Focused 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 Canada has no effect on the direction of BMO SIA i.e., BMO SIA and BMO MSCI go up and down completely randomly.

Pair Corralation between BMO SIA and BMO MSCI

Assuming the 90 days trading horizon BMO SIA Focused is expected to generate 1.27 times more return on investment than BMO MSCI. However, BMO SIA is 1.27 times more volatile than BMO MSCI Canada. It trades about 0.26 of its potential returns per unit of risk. BMO MSCI Canada is currently generating about 0.15 per unit of risk. If you would invest  5,129  in BMO SIA Focused on September 15, 2024 and sell it today you would earn a total of  620.00  from holding BMO SIA Focused or generate 12.09% return on investment over 90 days.

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

BMO SIA Focused  vs.  BMO MSCI Canada

BMO SIA Focused

Risk-Adjusted Performance

20 of 100

Solid

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

BMO MSCI Canada

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI Canada are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO MSCI 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 SIA and BMO MSCI

The main advantage of trading using opposite BMO SIA and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO SIA 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 BMO SIA Focused and BMO MSCI Canada 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.