Correlation Between Bank of Montreal and NFI

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

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

Diversification Opportunities for Bank of Montreal and NFI

0.69

Correlation Coefficient

Bank of Montreal  NFI

Poor diversification

The 3 months correlation between Bank and NFI is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and NFI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NFI Group and Bank of Montreal 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 Bank of Montreal are associated (or correlated) with NFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NFI Group has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and NFI go up and down completely randomly.

Pair Corralation between Bank of Montreal and NFI

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 0.12 times more return on investment than NFI. However, Bank of Montreal is 8.05 times less risky than NFI. It trades about -0.03 of its potential returns per unit of risk. NFI Group is currently generating about -0.04 per unit of risk. If you would invest  2,629  in Bank of Montreal on December 29, 2024 and sell it today you would lose (28.00) from holding Bank of Montreal or give up 1.07% of portfolio value over 90 days.

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

Bank of Montreal  vs.  NFI Group

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 somewhat strong basic indicators, Bank of Montreal is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

NFI Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days NFI Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Bank of Montreal and NFI

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

The idea behind Bank of Montreal and NFI Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.