Correlation Between Bank of Montreal and Tidewater Renewables

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

Diversification Opportunities for Bank of Montreal and Tidewater Renewables

-0.26

Correlation Coefficient

Bank of Montreal  Tidewater Renewables

Very good diversification

The 3 months correlation between Bank and Tidewater is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Tidewater Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater Renewables 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 Tidewater Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater Renewables has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Tidewater Renewables go up and down completely randomly.

Pair Corralation between Bank of Montreal and Tidewater Renewables

Assuming the 90 days trading horizon Bank of Montreal is expected to under-perform the Tidewater Renewables. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Montreal is 20.18 times less risky than Tidewater Renewables. The stock trades about -0.01 of its potential returns per unit of risk. The Tidewater Renewables is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  69.00  in Tidewater Renewables on December 30, 2024 and sell it today you would earn a total of  265.00  from holding Tidewater Renewables or generate 384.06% return on investment over 90 days.

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

Bank of Montreal  vs.  Tidewater Renewables

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. In spite of very healthy basic indicators, Bank of Montreal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Tidewater Renewables

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tidewater Renewables are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Tidewater Renewables displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Montreal and Tidewater Renewables

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

The idea behind Bank of Montreal and Tidewater Renewables 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.