Correlation Between Bank of Montreal and Telus Corp

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

Diversification Opportunities for Bank of Montreal and Telus Corp

-0.42

Correlation Coefficient

Bank of Montreal  Telus Corp

Very good diversification

The 3 months correlation between Bank and Telus is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Telus Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telus Corp 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 Telus Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telus Corp has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Telus Corp go up and down completely randomly.

Pair Corralation between Bank of Montreal and Telus Corp

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 1.16 times more return on investment than Telus Corp. However, Bank of Montreal is 1.16 times more volatile than Telus Corp. It trades about 0.33 of its potential returns per unit of risk. Telus Corp is currently generating about -0.03 per unit of risk. If you would invest  11,422  in Bank of Montreal on September 12, 2024 and sell it today you would earn a total of  2,865  from holding Bank of Montreal or generate 25.08% return on investment over 90 days.

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

Bank of Montreal  vs.  Telus Corp

Bank of Montreal

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 25 (%) 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.

Telus Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Telus Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Telus Corp 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 Telus Corp

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

The idea behind Bank of Montreal and Telus Corp 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.