Correlation Between SPTSX Dividend and Evolve Active

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

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

Diversification Opportunities for SPTSX Dividend and Evolve Active

-0.16

Correlation Coefficient

SPTSX Dividend  Evolve Active

Good diversification

The 3 months correlation between SPTSX and Evolve is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Evolve Active Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolve Active Canadian and SPTSX Dividend 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 SPTSX Dividend Aristocrats 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 Canadian has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Evolve Active go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Evolve Active

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 2.38 times less return on investment than Evolve Active. In addition to that, SPTSX Dividend is 1.8 times more volatile than Evolve Active Canadian. It trades about 0.02 of its total potential returns per unit of risk. Evolve Active Canadian is currently generating about 0.09 per unit of volatility. If you would invest  1,596  in Evolve Active Canadian on September 30, 2024 and sell it today you would earn a total of  25.00  from holding Evolve Active Canadian or generate 1.57% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  Evolve Active Canadian

Pair Trading with SPTSX Dividend and Evolve Active

The main advantage of trading using opposite SPTSX Dividend and Evolve Active positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPTSX Dividend 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 SPTSX Dividend Aristocrats and Evolve Active Canadian 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.