Correlation Between Wealthsimple Developed and BMO MSCI

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

By analyzing existing cross correlation between Wealthsimple Developed Markets and BMO MSCI EAFE, you can compare the effects of market volatilities on Wealthsimple Developed and BMO MSCI 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 Wealthsimple Developed with a short position of BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wealthsimple Developed and BMO MSCI.

Diversification Opportunities for Wealthsimple Developed and BMO MSCI

0.66

Correlation Coefficient

Wealthsimple Developed  BMO MSCI

Poor diversification

The 3 months correlation between Wealthsimple and BMO is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Wealthsimple Developed Markets and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE and Wealthsimple Developed 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 Wealthsimple Developed Markets are associated (or correlated) with BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of Wealthsimple Developed i.e., Wealthsimple Developed and BMO MSCI go up and down completely randomly.

Pair Corralation between Wealthsimple Developed and BMO MSCI

Assuming the 90 days trading horizon Wealthsimple Developed is expected to generate 1.13 times less return on investment than BMO MSCI. In addition to that, Wealthsimple Developed is 1.01 times more volatile than BMO MSCI EAFE. It trades about 0.08 of its total potential returns per unit of risk. BMO MSCI EAFE is currently generating about 0.09 per unit of volatility. If you would invest  2,611  in BMO MSCI EAFE on September 12, 2024 and sell it today you would earn a total of  394.00  from holding BMO MSCI EAFE or generate 15.09% return on investment over 90 days.

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

Wealthsimple Developed Markets  vs.  BMO MSCI EAFE

Wealthsimple Developed

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple Developed Markets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Wealthsimple Developed is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BMO MSCI EAFE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO MSCI EAFE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, BMO MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Wealthsimple Developed and BMO MSCI

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

The idea behind Wealthsimple Developed Markets and BMO MSCI EAFE 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.