Correlation Between BMO Government and Wealthsimple North

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

Diversification Opportunities for BMO Government and Wealthsimple North

-0.42

Correlation Coefficient

BMO Government  Wealthsimple North

Very good diversification

The 3 months correlation between BMO and Wealthsimple is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding BMO Government Bond 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 Government 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 Government Bond 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 Government i.e., BMO Government and Wealthsimple North go up and down completely randomly.

Pair Corralation between BMO Government and Wealthsimple North

Assuming the 90 days trading horizon BMO Government Bond is expected to under-perform the Wealthsimple North. But the etf apears to be less risky and, when comparing its historical volatility, BMO Government Bond is 2.06 times less risky than Wealthsimple North. The etf trades about -0.07 of its potential returns per unit of risk. The Wealthsimple North America is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,108  in Wealthsimple North America on April 20, 2025 and sell it today you would earn a total of  402.00  from holding Wealthsimple North America or generate 9.79% return on investment over 90 days.

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

BMO Government Bond  vs.  Wealthsimple North America

BMO Government Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMO Government Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, BMO Government 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

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple North America are ranked lower than 16 (%) 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 August 2025.

Pair Trading with BMO Government and Wealthsimple North

The main advantage of trading using opposite BMO Government and Wealthsimple North positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Government 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 Government Bond 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.