Correlation Between Bank of Montreal and Nu Holdings

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

Diversification Opportunities for Bank of Montreal and Nu Holdings

0.41

Correlation Coefficient

Bank of Montreal  Nu Holdings

Very weak diversification

The 3 months correlation between Bank and Nu Holdings is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Nu Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nu Holdings 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 Nu Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nu Holdings has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Nu Holdings go up and down completely randomly.

Pair Corralation between Bank of Montreal and Nu Holdings

Considering the 90-day investment horizon Bank of Montreal is expected to generate 0.62 times more return on investment than Nu Holdings. However, Bank of Montreal is 1.61 times less risky than Nu Holdings. It trades about -0.01 of its potential returns per unit of risk. Nu Holdings is currently generating about -0.03 per unit of risk. If you would invest  9,029  in Bank of Montreal on February 2, 2024 and sell it today you would lose (40.00) from holding Bank of Montreal or give up 0.44% 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.  Nu Holdings

Bank of Montreal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Montreal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Bank of Montreal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Nu Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nu Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Nu Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Montreal and Nu Holdings

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

The idea behind Bank of Montreal and Nu Holdings 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.