Correlation Between Canadian General and Bank of Montreal

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

Diversification Opportunities for Canadian General and Bank of Montreal

0.69

Correlation Coefficient

Canadian General  Bank of Montreal

Poor diversification

The 3 months correlation between Canadian and Bank is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Canadian General Investments 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 Canadian General 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 Canadian General Investments 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 Canadian General i.e., Canadian General and Bank of Montreal go up and down completely randomly.

Pair Corralation between Canadian General and Bank of Montreal

Assuming the 90 days trading horizon Canadian General Investments is expected to generate 2.43 times more return on investment than Bank of Montreal. However, Canadian General is 2.43 times more volatile than Bank of Montreal. It trades about 0.11 of its potential returns per unit of risk. Bank of Montreal is currently generating about 0.09 per unit of risk. If you would invest  3,884  in Canadian General Investments on September 16, 2024 and sell it today you would earn a total of  251.00  from holding Canadian General Investments or generate 6.46% return on investment over 90 days.

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

Canadian General Investments  vs.  Bank of Montreal

Canadian General Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian General Investments are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Canadian General may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of Montreal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Montreal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canadian General and Bank of Montreal

The main advantage of trading using opposite Canadian General and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian General 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 Canadian General Investments 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.