Correlation Between BMO MSCI and BMO SIA

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

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

Diversification Opportunities for BMO MSCI and BMO SIA

0.92

Correlation Coefficient

BMO MSCI  BMO SIA

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 MSCI Canada and BMO SIA Focused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO SIA Focused 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 Canada are associated (or correlated) with BMO SIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO SIA Focused has no effect on the direction of BMO MSCI i.e., BMO MSCI and BMO SIA go up and down completely randomly.

Pair Corralation between BMO MSCI and BMO SIA

Assuming the 90 days trading horizon BMO MSCI is expected to generate 10.23 times less return on investment than BMO SIA. But when comparing it to its historical volatility, BMO MSCI Canada is 1.2 times less risky than BMO SIA. It trades about 0.04 of its potential returns per unit of risk. BMO SIA Focused is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  5,508  in BMO SIA Focused on September 15, 2024 and sell it today you would earn a total of  241.00  from holding BMO SIA Focused or generate 4.38% return on investment over 90 days.

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

BMO MSCI Canada  vs.  BMO SIA Focused

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.

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.

Pair Trading with BMO MSCI and BMO SIA

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

The idea behind BMO MSCI Canada and BMO SIA Focused 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..