Correlation Between BMO Equal and Evolve Banks

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

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

Diversification Opportunities for BMO Equal and Evolve Banks

1.0

Correlation Coefficient

BMO Equal  Evolve Banks

No risk reduction

The 3 months correlation between BMO and Evolve is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BMO Equal Weight and Evolve Banks Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolve Banks Enhanced and BMO Equal 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 Equal Weight are associated (or correlated) with Evolve Banks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolve Banks Enhanced has no effect on the direction of BMO Equal i.e., BMO Equal and Evolve Banks go up and down completely randomly.

Pair Corralation between BMO Equal and Evolve Banks

Assuming the 90 days trading horizon BMO Equal Weight is expected to generate 1.12 times more return on investment than Evolve Banks. However, BMO Equal is 1.12 times more volatile than Evolve Banks Enhanced. It trades about 0.25 of its potential returns per unit of risk. Evolve Banks Enhanced is currently generating about 0.26 per unit of risk. If you would invest  2,842  in BMO Equal Weight on April 25, 2025 and sell it today you would earn a total of  676.00  from holding BMO Equal Weight or generate 23.79% return on investment over 90 days.

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

BMO Equal Weight  vs.  Evolve Banks Enhanced

BMO Equal Weight

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Equal Weight are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, BMO Equal displayed solid returns over the last few months and may actually be approaching a breakup point.

Evolve Banks Enhanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Evolve Banks Enhanced are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Evolve Banks displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Equal and Evolve Banks

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

The idea behind BMO Equal Weight and Evolve Banks Enhanced 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.