Correlation Between BMO Covered and Evolve Banks

Can any of the company-specific risk be diversified away by investing in both BMO Covered 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 Covered 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 Covered Call and Evolve Banks Enhanced, you can compare the effects of market volatilities on BMO Covered 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 Covered with a short position of Evolve Banks. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO Covered and Evolve Banks.

Diversification Opportunities for BMO Covered and Evolve Banks

0.01

Correlation Coefficient

BMO Covered  Evolve Banks

Significant diversification

The 3 months correlation between BMO and Evolve is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BMO Covered Call 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 Covered 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 Covered Call 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 Covered i.e., BMO Covered and Evolve Banks go up and down completely randomly.

Pair Corralation between BMO Covered and Evolve Banks

Assuming the 90 days trading horizon BMO Covered Call is expected to generate 0.47 times more return on investment than Evolve Banks. However, BMO Covered Call is 2.11 times less risky than Evolve Banks. It trades about -0.35 of its potential returns per unit of risk. Evolve Banks Enhanced is currently generating about -0.32 per unit of risk. If you would invest  1,108  in BMO Covered Call on September 27, 2024 and sell it today you would lose (46.00) from holding BMO Covered Call or give up 4.15% of portfolio value over 90 days.

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

BMO Covered Call  vs.  Evolve Banks Enhanced

BMO Covered Call

Risk-Adjusted Performance

0 of 100

Very Weak

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

Evolve Banks Enhanced

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Evolve Banks Enhanced are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Evolve Banks may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO Covered and Evolve Banks

The main advantage of trading using opposite BMO Covered and Evolve Banks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Covered 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 Covered Call 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.