Correlation Between Bank of Montreal and Premium Income

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

Diversification Opportunities for Bank of Montreal and Premium Income

-0.63

Correlation Coefficient

Bank of Montreal  Premium Income

Excellent diversification

The 3 months correlation between Bank and Premium is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income 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 Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Premium Income go up and down completely randomly.

Pair Corralation between Bank of Montreal and Premium Income

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 0.79 times more return on investment than Premium Income. However, Bank of Montreal is 1.27 times less risky than Premium Income. It trades about 0.19 of its potential returns per unit of risk. Premium Income is currently generating about -0.11 per unit of risk. If you would invest  12,234  in Bank of Montreal on October 7, 2024 and sell it today you would earn a total of  1,643  from holding Bank of Montreal or generate 13.43% return on investment over 90 days.

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

Bank of Montreal  vs.  Premium Income

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.

Premium Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bank of Montreal and Premium Income

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

The idea behind Bank of Montreal and Premium Income 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.