Correlation Between IShares MSCI and Wealthsimple Developed

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Wealthsimple Developed 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 IShares MSCI and Wealthsimple Developed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and Wealthsimple Developed Markets, you can compare the effects of market volatilities on IShares MSCI and Wealthsimple Developed 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 IShares MSCI with a short position of Wealthsimple Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Wealthsimple Developed.

Diversification Opportunities for IShares MSCI and Wealthsimple Developed

ISharesWealthsimpleDiversified AwayISharesWealthsimpleDiversified Away100%
0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and Wealthsimple is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Wealthsimple Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple Developed and IShares MSCI 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 iShares MSCI EAFE are associated (or correlated) with Wealthsimple Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealthsimple Developed has no effect on the direction of IShares MSCI i.e., IShares MSCI and Wealthsimple Developed go up and down completely randomly.

Pair Corralation between IShares MSCI and Wealthsimple Developed

Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.41 times less return on investment than Wealthsimple Developed. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.18 times less risky than Wealthsimple Developed. It trades about 0.19 of its potential returns per unit of risk. Wealthsimple Developed Markets is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,872  in Wealthsimple Developed Markets on November 22, 2024 and sell it today you would earn a total of  255.00  from holding Wealthsimple Developed Markets or generate 8.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares MSCI EAFE  vs.  Wealthsimple Developed Markets

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 02468
JavaScript chart by amCharts 3.21.15XIN WSRD
       Timeline  
iShares MSCI EAFE 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb35.53636.53737.53838.5
Wealthsimple Developed 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple Developed Markets are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Wealthsimple Developed may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2929.53030.53131.5

IShares MSCI and Wealthsimple Developed Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.61-1.17-0.73-0.290.06760.490.931.371.81 0.20.40.60.81.01.21.4
JavaScript chart by amCharts 3.21.15XIN WSRD
       Returns  

Pair Trading with IShares MSCI and Wealthsimple Developed

The main advantage of trading using opposite IShares MSCI and Wealthsimple Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Wealthsimple Developed 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 Wealthsimple Developed will offset losses from the drop in Wealthsimple Developed's long position.
The idea behind iShares MSCI EAFE and Wealthsimple Developed Markets 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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