Correlation Between IShares Canadian and Bank of Montreal

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

Diversification Opportunities for IShares Canadian and Bank of Montreal

0.6

Correlation Coefficient

IShares Canadian  Bank of Montreal

Poor diversification

The 3 months correlation between IShares and Bank is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid 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 IShares Canadian 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 iShares Canadian HYBrid 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 IShares Canadian i.e., IShares Canadian and Bank of Montreal go up and down completely randomly.

Pair Corralation between IShares Canadian and Bank of Montreal

Assuming the 90 days trading horizon iShares Canadian HYBrid is expected to generate about the same return on investment as Bank of Montreal. But, iShares Canadian HYBrid is 1.41 times less risky than Bank of Montreal. It trades about 0.14 of its potential returns per unit of risk. Bank of Montreal is currently generating about 0.1 per unit of risk. If you would invest  2,548  in Bank of Montreal on September 17, 2024 and sell it today you would earn a total of  65.00  from holding Bank of Montreal or generate 2.55% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  Bank of Montreal

iShares Canadian HYBrid

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bank of Montreal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 8 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and Bank of Montreal

The main advantage of trading using opposite IShares Canadian and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Canadian 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 iShares Canadian HYBrid 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.