Correlation Between Bank of Montreal and Clarke

Can any of the company-specific risk be diversified away by investing in both Bank of Montreal and Clarke 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 Clarke 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 Clarke Inc, you can compare the effects of market volatilities on Bank of Montreal and Clarke 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 Clarke. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Montreal and Clarke.

Diversification Opportunities for Bank of Montreal and Clarke

-0.86

Correlation Coefficient

Bank of Montreal  Clarke

Pay attention - limited upside

The 3 months correlation between Bank and Clarke is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Clarke Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clarke Inc 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 Clarke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clarke Inc has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Clarke go up and down completely randomly.

Pair Corralation between Bank of Montreal and Clarke

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 4.15 times more return on investment than Clarke. However, Bank of Montreal is 4.15 times more volatile than Clarke Inc. It trades about 0.19 of its potential returns per unit of risk. Clarke Inc is currently generating about -0.1 per unit of risk. If you would invest  12,163  in Bank of Montreal on October 9, 2024 and sell it today you would earn a total of  1,632  from holding Bank of Montreal or generate 13.42% return on investment over 90 days.

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

Bank of Montreal  vs.  Clarke Inc

Bank of Montreal

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Montreal displayed solid returns over the last few months and may actually be approaching a breakup point.

Clarke Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clarke Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Clarke is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank of Montreal and Clarke

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

The idea behind Bank of Montreal and Clarke Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.