Correlation Between BMO Aggregate and Knight Therapeutics

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

Diversification Opportunities for BMO Aggregate and Knight Therapeutics

0.55

Correlation Coefficient

BMO Aggregate  Knight Therapeutics

Very weak diversification

The 3 months correlation between BMO and Knight is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BMO Aggregate Bond and Knight Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Therapeutics 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 Knight Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Therapeutics has no effect on the direction of BMO Aggregate i.e., BMO Aggregate and Knight Therapeutics go up and down completely randomly.

Pair Corralation between BMO Aggregate and Knight Therapeutics

Assuming the 90 days trading horizon BMO Aggregate is expected to generate 8.73 times less return on investment than Knight Therapeutics. But when comparing it to its historical volatility, BMO Aggregate Bond is 5.54 times less risky than Knight Therapeutics. It trades about 0.1 of its potential returns per unit of risk. Knight Therapeutics is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  523.00  in Knight Therapeutics on December 23, 2024 and sell it today you would earn a total of  95.00  from holding Knight Therapeutics or generate 18.16% return on investment over 90 days.

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

BMO Aggregate Bond  vs.  Knight Therapeutics

BMO Aggregate Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Knight Therapeutics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Knight Therapeutics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Knight Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMO Aggregate and Knight Therapeutics

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

The idea behind BMO Aggregate Bond and Knight Therapeutics 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.