Correlation Between BMO Low and Wealthsimple Developed

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

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

Diversification Opportunities for BMO Low and Wealthsimple Developed

0.92

Correlation Coefficient

BMO Low  Wealthsimple Developed

Almost no diversification

The 3 months correlation between BMO and Wealthsimple is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding BMO Low Volatility and Wealthsimple Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple Developed and BMO Low 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 Low Volatility 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 BMO Low i.e., BMO Low and Wealthsimple Developed go up and down completely randomly.

Pair Corralation between BMO Low and Wealthsimple Developed

Assuming the 90 days trading horizon BMO Low is expected to generate 2.43 times less return on investment than Wealthsimple Developed. But when comparing it to its historical volatility, BMO Low Volatility is 1.27 times less risky than Wealthsimple Developed. It trades about 0.1 of its potential returns per unit of risk. Wealthsimple Developed Markets is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,967  in Wealthsimple Developed Markets on April 16, 2025 and sell it today you would earn a total of  288.00  from holding Wealthsimple Developed Markets or generate 9.71% return on investment over 90 days.

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

BMO Low Volatility  vs.  Wealthsimple Developed Markets

BMO Low Volatility

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Low Volatility are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BMO Low is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Wealthsimple Developed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple Developed Markets are ranked lower than 15 (%) 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 August 2025.

Pair Trading with BMO Low and Wealthsimple Developed

The main advantage of trading using opposite BMO Low and Wealthsimple Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Low 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 BMO Low Volatility 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.