Correlation Between Bank of Montreal and MicroSectors FANG

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

Diversification Opportunities for Bank of Montreal and MicroSectors FANG

0.49

Correlation Coefficient

Bank of Montreal  MicroSectors FANG

Very weak diversification

The 3 months correlation between Bank and MicroSectors is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and MicroSectors FANG go up and down completely randomly.

Pair Corralation between Bank of Montreal and MicroSectors FANG

Given the investment horizon of 90 days Bank of Montreal is expected to generate 0.9 times more return on investment than MicroSectors FANG. However, Bank of Montreal is 1.11 times less risky than MicroSectors FANG. It trades about -0.29 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about -0.53 per unit of risk. If you would invest  3,274  in Bank of Montreal on February 16, 2025 and sell it today you would lose (930.00) from holding Bank of Montreal or give up 28.41% of portfolio value over 90 days.

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

Bank of Montreal  vs.  MicroSectors FANG Index

Bank of Montreal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Bank of Montreal exhibited solid returns over the last few months and may actually be approaching a breakup point.

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of Montreal and MicroSectors FANG

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

The idea behind Bank of Montreal and MicroSectors FANG Index 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.