Correlation Between Bank of Montreal and Canadian Imperial

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

Diversification Opportunities for Bank of Montreal and Canadian Imperial

0.93

Correlation Coefficient

Bank of Montreal  Canadian Imperial

Almost no diversification

The 3 months correlation between Bank and Canadian is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Canadian Imperial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Imperial 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 Canadian Imperial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Imperial Bank has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Canadian Imperial go up and down completely randomly.

Pair Corralation between Bank of Montreal and Canadian Imperial

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 1.06 times more return on investment than Canadian Imperial. However, Bank of Montreal is 1.06 times more volatile than Canadian Imperial Bank. It trades about 0.39 of its potential returns per unit of risk. Canadian Imperial Bank is currently generating about 0.34 per unit of risk. If you would invest  11,022  in Bank of Montreal on September 2, 2024 and sell it today you would earn a total of  2,328  from holding Bank of Montreal or generate 21.12% return on investment over 90 days.

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

Bank of Montreal  vs.  Canadian Imperial Bank

Bank of Montreal

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 31 (%) 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.

Canadian Imperial Bank

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Imperial Bank are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Imperial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Montreal and Canadian Imperial

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

The idea behind Bank of Montreal and Canadian Imperial Bank 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.