Correlation Between Addus HomeCare and Bank of Montreal

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

By analyzing existing cross correlation between Addus HomeCare and Bank of Montreal, you can compare the effects of market volatilities on Addus HomeCare and Bank of Montreal 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 Addus HomeCare with a short position of Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Addus HomeCare and Bank of Montreal.

Diversification Opportunities for Addus HomeCare and Bank of Montreal

0.15

Correlation Coefficient

Addus HomeCare  Bank of Montreal

Average diversification

The 3 months correlation between Addus and Bank is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal and Addus HomeCare 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 Addus HomeCare are associated (or correlated) with Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Addus HomeCare i.e., Addus HomeCare and Bank of Montreal go up and down completely randomly.

Pair Corralation between Addus HomeCare and Bank of Montreal

Assuming the 90 days horizon Addus HomeCare is expected to under-perform the Bank of Montreal. In addition to that, Addus HomeCare is 1.83 times more volatile than Bank of Montreal. It trades about -0.3 of its total potential returns per unit of risk. Bank of Montreal is currently generating about -0.02 per unit of volatility. If you would invest  9,078  in Bank of Montreal on December 19, 2024 and sell it today you would lose (158.00) from holding Bank of Montreal or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Addus HomeCare  vs.  Bank of Montreal

Addus HomeCare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Bank of Montreal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Montreal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bank of Montreal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Addus HomeCare and Bank of Montreal

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

The idea behind Addus HomeCare and Bank of Montreal 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.