Correlation Between Bank of Montreal and Algonquin Power

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

Diversification Opportunities for Bank of Montreal and Algonquin Power

-0.74

Correlation Coefficient

Bank of Montreal  Algonquin Power

Pay attention - limited upside

The 3 months correlation between Bank and Algonquin is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Algonquin Power go up and down completely randomly.

Pair Corralation between Bank of Montreal and Algonquin Power

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 0.75 times more return on investment than Algonquin Power. However, Bank of Montreal is 1.33 times less risky than Algonquin Power. It trades about 0.33 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.09 per unit of risk. If you would invest  11,422  in Bank of Montreal on September 12, 2024 and sell it today you would earn a total of  2,865  from holding Bank of Montreal or generate 25.08% return on investment over 90 days.

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

Bank of Montreal  vs.  Algonquin Power Utilities

Bank of Montreal

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Montreal displayed solid returns over the last few months and may actually be approaching a breakup point.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Bank of Montreal and Algonquin Power

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

The idea behind Bank of Montreal and Algonquin Power Utilities 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.