Correlation Between Montauk Renewables and Omnicom

Can any of the company-specific risk be diversified away by investing in both Montauk Renewables and Omnicom 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 Montauk Renewables and Omnicom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Montauk Renewables and Omnicom Group, you can compare the effects of market volatilities on Montauk Renewables and Omnicom 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 Montauk Renewables with a short position of Omnicom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Montauk Renewables and Omnicom.

Diversification Opportunities for Montauk Renewables and Omnicom

-0.72

Correlation Coefficient

Montauk Renewables  Omnicom

Pay attention - limited upside

The 3 months correlation between Montauk and Omnicom is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Montauk Renewables and Omnicom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omnicom Group and Montauk Renewables 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 Montauk Renewables are associated (or correlated) with Omnicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omnicom Group has no effect on the direction of Montauk Renewables i.e., Montauk Renewables and Omnicom go up and down completely randomly.

Pair Corralation between Montauk Renewables and Omnicom

Given the investment horizon of 90 days Montauk Renewables is expected to generate 4.09 times less return on investment than Omnicom. In addition to that, Montauk Renewables is 3.05 times more volatile than Omnicom Group. It trades about 0.01 of its total potential returns per unit of risk. Omnicom Group is currently generating about 0.1 per unit of volatility. If you would invest  9,337  in Omnicom Group on January 25, 2024 and sell it today you would earn a total of  261.00  from holding Omnicom Group or generate 2.8% return on investment over 90 days.

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

Montauk Renewables  vs.  Omnicom Group

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Omnicom Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Omnicom Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Omnicom may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Montauk Renewables and Omnicom

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

The idea behind Montauk Renewables and Omnicom Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.