Correlation Between BMO Short and Wealthsimple Developed

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

Diversification Opportunities for BMO Short and Wealthsimple Developed

0.63

Correlation Coefficient

BMO Short  Wealthsimple Developed

Poor diversification

The 3 months correlation between BMO and Wealthsimple is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Term Bond 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 Short 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 Short Term Bond 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 Short i.e., BMO Short and Wealthsimple Developed go up and down completely randomly.

Pair Corralation between BMO Short and Wealthsimple Developed

Assuming the 90 days trading horizon BMO Short is expected to generate 15.23 times less return on investment than Wealthsimple Developed. But when comparing it to its historical volatility, BMO Short Term Bond is 6.26 times less risky than Wealthsimple Developed. It trades about 0.07 of its potential returns per unit of risk. Wealthsimple Developed Markets is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,031  in Wealthsimple Developed Markets on April 22, 2025 and sell it today you would earn a total of  225.00  from holding Wealthsimple Developed Markets or generate 7.42% return on investment over 90 days.

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

BMO Short Term Bond  vs.  Wealthsimple Developed Markets

BMO Short Term

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Term Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, BMO Short 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 13 (%) 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 Short and Wealthsimple Developed

The main advantage of trading using opposite BMO Short and Wealthsimple Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO Short 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 Short Term Bond 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.