Correlation Between BMO MSCI and BMO NASDAQ

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

By analyzing existing cross correlation between BMO MSCI India and BMO NASDAQ 100, you can compare the effects of market volatilities on BMO MSCI and BMO NASDAQ 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 BMO NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO MSCI and BMO NASDAQ.

Diversification Opportunities for BMO MSCI and BMO NASDAQ

-0.39

Correlation Coefficient

BMO MSCI  BMO NASDAQ

Very good diversification

The 3 months correlation between BMO and BMO is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding BMO MSCI India and BMO NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO NASDAQ 100 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 India are associated (or correlated) with BMO NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO NASDAQ 100 has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO NASDAQ go up and down completely randomly.

Pair Corralation between BMO MSCI and BMO NASDAQ

Assuming the 90 days trading horizon BMO MSCI India is expected to under-perform the BMO NASDAQ. But the etf apears to be less risky and, when comparing its historical volatility, BMO MSCI India is 1.16 times less risky than BMO NASDAQ. The etf trades about 0.0 of its potential returns per unit of risk. The BMO NASDAQ 100 is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  13,601  in BMO NASDAQ 100 on September 16, 2024 and sell it today you would earn a total of  1,632  from holding BMO NASDAQ 100 or generate 12.0% return on investment over 90 days.

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

BMO MSCI India  vs.  BMO NASDAQ 100

BMO MSCI India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO MSCI India has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BMO NASDAQ 100

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMO NASDAQ 100 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO MSCI and BMO NASDAQ

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

The idea behind BMO MSCI India and BMO NASDAQ 100 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.