Correlation Between BMO Aggregate and IShares Core

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

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

Diversification Opportunities for BMO Aggregate and IShares Core

-0.73

Correlation Coefficient

BMO Aggregate  IShares Core

Pay attention - limited upside

The 3 months correlation between BMO and IShares is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and iShares Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Equity and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Equity has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and IShares Core go up and down completely randomly.

Pair Corralation between BMO Aggregate and IShares Core

Assuming the 90 days trading horizon BMO Aggregate Bond is expected to under-perform the IShares Core. But the etf apears to be less risky and, when comparing its historical volatility, BMO Aggregate Bond is 1.72 times less risky than IShares Core. The etf trades about -0.14 of its potential returns per unit of risk. The iShares Core Equity is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,166  in iShares Core Equity on September 12, 2024 and sell it today you would earn a total of  298.00  from holding iShares Core Equity or generate 9.41% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  iShares Core Equity

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Core Equity

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Equity are ranked lower than 22 (%) 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.

Pair Trading with BMO Aggregate and IShares Core

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

The idea behind BMO Aggregate Bond and iShares Core Equity 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.