Correlation Between East West and Bank of Montreal
Can any of the company-specific risk be diversified away by investing in both East West 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 East West 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 East West Bancorp and Bank of Montreal, you can compare the effects of market volatilities on East West 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 East West with a short position of Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Bank of Montreal.
Diversification Opportunities for East West and Bank of Montreal
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between East and Bank is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding East West Bancorp 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 East West 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 East West Bancorp 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 East West i.e., East West and Bank of Montreal go up and down completely randomly.
Pair Corralation between East West and Bank of Montreal
Given the investment horizon of 90 days East West Bancorp is expected to under-perform the Bank of Montreal. In addition to that, East West is 1.62 times more volatile than Bank of Montreal. It trades about -0.16 of its total potential returns per unit of risk. Bank of Montreal is currently generating about -0.25 per unit of volatility. If you would invest 9,613 in Bank of Montreal on January 20, 2024 and sell it today you would lose (512.00) from holding Bank of Montreal or give up 5.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
East West Bancorp vs. Bank of Montreal
Performance |
| Timeline |
| East West Bancorp |
| Bank of Montreal |
East West and Bank of Montreal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Bank of Montreal
The main advantage of trading using opposite East West and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 East West Bancorp 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.| Bank of Montreal vs. Canadian Imperial Bank | Bank of Montreal vs. Toronto Dominion Bank | Bank of Montreal vs. Royal Bank of | Bank of Montreal vs. Citigroup |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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