Correlation Between BMO SP and Evolve Active

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

By analyzing existing cross correlation between BMO SP 500 and Evolve Active Core, you can compare the effects of market volatilities on BMO SP and Evolve Active 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 BMO SP with a short position of Evolve Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO SP and Evolve Active.

Diversification Opportunities for BMO SP and Evolve Active

0.83

Correlation Coefficient

BMO SP  Evolve Active

Very poor diversification

The 3 months correlation between BMO and Evolve is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BMO SP 500 and Evolve Active Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolve Active Core and BMO SP 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 BMO SP 500 are associated (or correlated) with Evolve Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolve Active Core has no effect on the direction of BMO SP i.e., BMO SP and Evolve Active go up and down completely randomly.

Pair Corralation between BMO SP and Evolve Active

Assuming the 90 days trading horizon BMO SP 500 is expected to generate 4.62 times more return on investment than Evolve Active. However, BMO SP is 4.62 times more volatile than Evolve Active Core. It trades about 0.31 of its potential returns per unit of risk. Evolve Active Core is currently generating about 0.08 per unit of risk. If you would invest  7,974  in BMO SP 500 on April 22, 2025 and sell it today you would earn a total of  1,480  from holding BMO SP 500 or generate 18.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

BMO SP 500  vs.  Evolve Active Core

BMO SP 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO SP 500 are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMO SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Evolve Active Core

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Evolve Active Core are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Evolve Active is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BMO SP and Evolve Active

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

The idea behind BMO SP 500 and Evolve Active Core 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.