Correlation Between Falcon Energy and Bank of Montreal

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

Diversification Opportunities for Falcon Energy and Bank of Montreal

0.52

Correlation Coefficient

Falcon Energy  Bank of Montreal

Very weak diversification

The 3 months correlation between Falcon and Bank is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Energy Materials 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 Falcon Energy 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 Falcon Energy Materials 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 Falcon Energy i.e., Falcon Energy and Bank of Montreal go up and down completely randomly.

Pair Corralation between Falcon Energy and Bank of Montreal

Assuming the 90 days trading horizon Falcon Energy Materials is expected to under-perform the Bank of Montreal. In addition to that, Falcon Energy is 8.91 times more volatile than Bank of Montreal. It trades about -0.35 of its total potential returns per unit of risk. Bank of Montreal is currently generating about -0.05 per unit of volatility. If you would invest  2,623  in Bank of Montreal on September 19, 2024 and sell it today you would lose (9.00) from holding Bank of Montreal or give up 0.34% of portfolio value over 90 days.

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

Falcon Energy Materials  vs.  Bank of Montreal

Falcon Energy Materials

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcon Energy 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 Falcon Energy and Bank of Montreal

The main advantage of trading using opposite Falcon Energy and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Falcon Energy 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 Falcon Energy Materials 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.