Correlation Between Bank of Montreal and Restaurant Brands

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

Diversification Opportunities for Bank of Montreal and Restaurant Brands

-0.2

Correlation Coefficient

Bank of Montreal  Restaurant Brands

Good diversification

The 3 months correlation between Bank and Restaurant is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Restaurant Brands go up and down completely randomly.

Pair Corralation between Bank of Montreal and Restaurant Brands

Assuming the 90 days trading horizon Bank of Montreal is expected to under-perform the Restaurant Brands. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Montreal is 1.42 times less risky than Restaurant Brands. The stock trades about -0.01 of its potential returns per unit of risk. The Restaurant Brands International is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,256  in Restaurant Brands International on December 30, 2024 and sell it today you would lose (15.00) from holding Restaurant Brands International or give up 0.16% of portfolio value over 90 days.

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

Bank of Montreal  vs.  Restaurant Brands Internationa

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.

Restaurant Brands

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Bank of Montreal and Restaurant Brands

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

The idea behind Bank of Montreal and Restaurant Brands International 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 Anywhere module to track or share privately all of your investments from the convenience of any device.