Correlation Between Bank of Montreal and Metro

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

Diversification Opportunities for Bank of Montreal and Metro

0.87

Correlation Coefficient

Bank of Montreal  Metro

Very poor diversification

The 3 months correlation between Bank and Metro is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro 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 Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Metro go up and down completely randomly.

Pair Corralation between Bank of Montreal and Metro

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 1.02 times less return on investment than Metro. In addition to that, Bank of Montreal is 1.21 times more volatile than Metro Inc. It trades about 0.07 of its total potential returns per unit of risk. Metro Inc is currently generating about 0.09 per unit of volatility. If you would invest  6,903  in Metro Inc on October 4, 2024 and sell it today you would earn a total of  2,114  from holding Metro Inc or generate 30.62% return on investment over 90 days.

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

Bank of Montreal  vs.  Metro 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 weak basic indicators, Bank of Montreal displayed solid returns over the last few months and may actually be approaching a breakup point.

Metro Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bank of Montreal and Metro

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

The idea behind Bank of Montreal and Metro 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.