Correlation Between Bank of Montreal and Royal Bank

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

Diversification Opportunities for Bank of Montreal and Royal Bank

0.65

Correlation Coefficient

Bank of Montreal  Royal Bank

Poor diversification

The 3 months correlation between Bank and Royal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Royal Bank go up and down completely randomly.

Pair Corralation between Bank of Montreal and Royal Bank

Considering the 90-day investment horizon Bank of Montreal is expected to generate 1.05 times more return on investment than Royal Bank. However, Bank of Montreal is 1.05 times more volatile than Royal Bank of. It trades about 0.26 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.09 per unit of risk. If you would invest  8,262  in Bank of Montreal on August 30, 2024 and sell it today you would earn a total of  1,234  from holding Bank of Montreal or generate 14.94% 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.  Royal Bank of

Bank of Montreal

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Bank of Montreal displayed solid returns over the last few months and may actually be approaching a breakup point.

Royal Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Royal Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of Montreal and Royal Bank

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

The idea behind Bank of Montreal and Royal Bank of 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.