Correlation Between BMO Canadian and IShares Canadian

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

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

Diversification Opportunities for BMO Canadian and IShares Canadian

0.99

Correlation Coefficient

BMO Canadian  IShares Canadian

No risk reduction

The 3 months correlation between BMO and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding BMO Canadian High and iShares Canadian Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Select and BMO Canadian 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 Canadian High are associated (or correlated) with IShares Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian Select has no effect on the direction of BMO Canadian i.e., BMO Canadian and IShares Canadian go up and down completely randomly.

Pair Corralation between BMO Canadian and IShares Canadian

Assuming the 90 days trading horizon BMO Canadian is expected to generate 1.75 times less return on investment than IShares Canadian. But when comparing it to its historical volatility, BMO Canadian High is 1.07 times less risky than IShares Canadian. It trades about 0.26 of its potential returns per unit of risk. iShares Canadian Select is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  2,935  in iShares Canadian Select on September 2, 2024 and sell it today you would earn a total of  330.00  from holding iShares Canadian Select or generate 11.24% return on investment over 90 days.

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

BMO Canadian High  vs.  iShares Canadian Select

BMO Canadian High

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Canadian High are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, BMO Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Canadian Select

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Select are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Canadian and IShares Canadian

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

The idea behind BMO Canadian High and iShares Canadian Select 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.