Correlation Between BMO High and Wealthsimple North

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

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

Diversification Opportunities for BMO High and Wealthsimple North

0.54

Correlation Coefficient

BMO High  Wealthsimple North

Very weak diversification

The 3 months correlation between BMO and Wealthsimple is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Yield and Wealthsimple North America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple North and BMO High 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 High Yield are associated (or correlated) with Wealthsimple North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealthsimple North has no effect on the direction of BMO High i.e., BMO High and Wealthsimple North go up and down completely randomly.

Pair Corralation between BMO High and Wealthsimple North

Assuming the 90 days trading horizon BMO High is expected to generate 5.47 times less return on investment than Wealthsimple North. But when comparing it to its historical volatility, BMO High Yield is 1.78 times less risky than Wealthsimple North. It trades about 0.07 of its potential returns per unit of risk. Wealthsimple North America is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,219  in Wealthsimple North America on September 4, 2024 and sell it today you would earn a total of  346.00  from holding Wealthsimple North America or generate 8.2% return on investment over 90 days.

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

BMO High Yield  vs.  Wealthsimple North America

BMO High Yield

Risk-Adjusted Performance

5 of 100

Modest

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

Wealthsimple North

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple North America are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Wealthsimple North may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMO High and Wealthsimple North

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

The idea behind BMO High Yield and Wealthsimple North America 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.