Correlation Between Bank of Montreal and Big 5

Can any of the company-specific risk be diversified away by investing in both Bank of Montreal and Big 5 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 Big 5 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 Big 5 Sporting, you can compare the effects of market volatilities on Bank of Montreal and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Montreal and Big 5.

Diversification Opportunities for Bank of Montreal and Big 5

0.38

Correlation Coefficient

Bank of Montreal  Big 5

Weak diversification

The 3 months correlation between Bank and Big is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Big 5 go up and down completely randomly.

Pair Corralation between Bank of Montreal and Big 5

Assuming the 90 days horizon Bank of Montreal is expected to generate 0.32 times more return on investment than Big 5. However, Bank of Montreal is 3.1 times less risky than Big 5. It trades about -0.01 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.26 per unit of risk. If you would invest  9,169  in Bank of Montreal on December 27, 2024 and sell it today you would lose (111.00) from holding Bank of Montreal or give up 1.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Bank of Montreal  vs.  Big 5 Sporting

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. Despite nearly stable basic indicators, Bank of Montreal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank of Montreal and Big 5

The main advantage of trading using opposite Bank of Montreal and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Montreal position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind Bank of Montreal and Big 5 Sporting 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.