Correlation Between Nu Holdings and Bank of Montreal

Can any of the company-specific risk be diversified away by investing in both Nu Holdings and Bank of Montreal 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 Nu Holdings and Bank of Montreal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nu Holdings and Bank of Montreal, you can compare the effects of market volatilities on Nu Holdings and Bank of Montreal 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 Nu Holdings with a short position of Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nu Holdings and Bank of Montreal.

Diversification Opportunities for Nu Holdings and Bank of Montreal

0.43

Correlation Coefficient

Nu Holdings  Bank of Montreal

Very weak diversification

The 3 months correlation between Nu Holdings and Bank is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Nu Holdings and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal and Nu Holdings 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 Nu Holdings are associated (or correlated) with Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of Nu Holdings i.e., Nu Holdings and Bank of Montreal go up and down completely randomly.

Pair Corralation between Nu Holdings and Bank of Montreal

Allowing for the 90-day total investment horizon Nu Holdings is expected to generate 3.38 times more return on investment than Bank of Montreal. However, Nu Holdings is 3.38 times more volatile than Bank of Montreal. It trades about 0.01 of its potential returns per unit of risk. Bank of Montreal is currently generating about 0.0 per unit of risk. If you would invest  1,065  in Nu Holdings on December 29, 2024 and sell it today you would lose (30.00) from holding Nu Holdings or give up 2.82% of portfolio value over 90 days.

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

Nu Holdings  vs.  Bank of Montreal

Nu Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nu Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nu Holdings is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 very healthy primary indicators, Bank of Montreal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nu Holdings and Bank of Montreal

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

The idea behind Nu Holdings and Bank of Montreal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.