Correlation Between BMO Aggregate and Evolve Innovation

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

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

Diversification Opportunities for BMO Aggregate and Evolve Innovation

-0.71

Correlation Coefficient

BMO Aggregate  Evolve Innovation

Pay attention - limited upside

The 3 months correlation between BMO and Evolve is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Evolve Innovation Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolve Innovation Index and BMO Aggregate 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 Aggregate Bond are associated (or correlated) with Evolve Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolve Innovation Index has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Evolve Innovation go up and down completely randomly.

Pair Corralation between BMO Aggregate and Evolve Innovation

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 28.22 times less return on investment than Evolve Innovation. But when comparing it to its historical volatility, BMO Aggregate Bond is 2.87 times less risky than Evolve Innovation. It trades about 0.01 of its potential returns per unit of risk. Evolve Innovation Index is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,660  in Evolve Innovation Index on September 12, 2024 and sell it today you would earn a total of  1,382  from holding Evolve Innovation Index or generate 51.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.15%
Values	Daily Returns

BMO Aggregate Bond  vs.  Evolve Innovation Index

BMO Aggregate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMO Aggregate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Evolve Innovation Index

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Evolve Innovation Index are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Evolve Innovation may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Aggregate and Evolve Innovation

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

The idea behind BMO Aggregate Bond and Evolve Innovation Index 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.