Correlation Between Bank of Montreal and Transat AT

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

Diversification Opportunities for Bank of Montreal and Transat AT

0.69

Correlation Coefficient

Bank of Montreal  Transat AT

Poor diversification

The 3 months correlation between Bank and Transat is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Transat AT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transat AT 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 Transat AT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transat AT has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Transat AT go up and down completely randomly.

Pair Corralation between Bank of Montreal and Transat AT

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 0.48 times more return on investment than Transat AT. However, Bank of Montreal is 2.07 times less risky than Transat AT. It trades about 0.08 of its potential returns per unit of risk. Transat AT is currently generating about -0.07 per unit of risk. If you would invest  10,530  in Bank of Montreal on October 5, 2024 and sell it today you would earn a total of  3,347  from holding Bank of Montreal or generate 31.79% return on investment over 90 days.

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

Bank of Montreal  vs.  Transat AT

Bank of Montreal

Risk-Adjusted Performance

15 of 100

Solid

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

Transat AT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transat AT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Transat AT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bank of Montreal and Transat AT

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

The idea behind Bank of Montreal and Transat AT 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.