Correlation Between Bank of Montreal and CVS Health

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

Diversification Opportunities for Bank of Montreal and CVS Health

0.28

Correlation Coefficient

Bank of Montreal  CVS Health

Modest diversification

The 3 months correlation between Bank and CVS is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and CVS Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health Corp 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health Corp has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and CVS Health go up and down completely randomly.

Pair Corralation between Bank of Montreal and CVS Health

Assuming the 90 days trading horizon Bank of Montreal is expected to generate 0.24 times more return on investment than CVS Health. However, Bank of Montreal is 4.24 times less risky than CVS Health. It trades about -0.18 of its potential returns per unit of risk. CVS Health Corp is currently generating about -0.31 per unit of risk. If you would invest  12,936  in Bank of Montreal on February 4, 2024 and sell it today you would lose (457.00) from holding Bank of Montreal or give up 3.53% of portfolio value over 90 days.

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

Bank of Montreal  vs.  CVS Health Corp

Bank of Montreal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Bank of Montreal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CVS Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Bank of Montreal and CVS Health

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

The idea behind Bank of Montreal and CVS Health Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.