Correlation Between Bank of Montreal and MicroSectors Solactive

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

Diversification Opportunities for Bank of Montreal and MicroSectors Solactive

0.13

Correlation Coefficient

Bank of Montreal  MicroSectors Solactive

Average diversification

The 3 months correlation between Bank and MicroSectors is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and MicroSectors Solactive FANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Solactive 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 MicroSectors Solactive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Solactive has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and MicroSectors Solactive go up and down completely randomly.

Pair Corralation between Bank of Montreal and MicroSectors Solactive

Given the investment horizon of 90 days Bank of Montreal is expected to under-perform the MicroSectors Solactive. But the etf apears to be less risky and, when comparing its historical volatility, Bank of Montreal is 1.01 times less risky than MicroSectors Solactive. The etf trades about -0.23 of its potential returns per unit of risk. The MicroSectors Solactive FANG is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  17,798  in MicroSectors Solactive FANG on December 22, 2024 and sell it today you would lose (5,749) from holding MicroSectors Solactive FANG or give up 32.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	37.7%
Values	Daily Returns

Bank of Montreal  vs.  MicroSectors Solactive FANG

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 weak performance in the last few months, the Etf's forward-looking signals remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

MicroSectors Solactive

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors Solactive FANG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Bank of Montreal and MicroSectors Solactive

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

The idea behind Bank of Montreal and MicroSectors Solactive FANG 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.