Correlation Between BMO Global and IShares SP

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

By analyzing existing cross correlation between BMO Global Infrastructure and iShares SP Global, you can compare the effects of market volatilities on BMO Global and IShares SP 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 Global with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Global and IShares SP.

Diversification Opportunities for BMO Global and IShares SP

0.7

Correlation Coefficient

BMO Global  IShares SP

Poor diversification

The 3 months correlation between BMO and IShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BMO Global Infrastructure and iShares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Global and BMO Global 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 Global Infrastructure are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Global has no effect on the direction of BMO Global i.e., BMO Global and IShares SP go up and down completely randomly.

Pair Corralation between BMO Global and IShares SP

Assuming the 90 days trading horizon BMO Global is expected to generate 3.66 times less return on investment than IShares SP. But when comparing it to its historical volatility, BMO Global Infrastructure is 1.3 times less risky than IShares SP. It trades about 0.1 of its potential returns per unit of risk. iShares SP Global is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  5,244  in iShares SP Global on September 16, 2024 and sell it today you would earn a total of  906.00  from holding iShares SP Global or generate 17.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.85%
Values	Daily Returns

BMO Global Infrastructure  vs.  iShares SP Global

BMO Global Infrastructure

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Infrastructure are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares SP Global

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Global are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, IShares SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Global and IShares SP

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

The idea behind BMO Global Infrastructure and iShares SP Global 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .