Correlation Between BMO Short and Wealthsimple North

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

Diversification Opportunities for BMO Short and Wealthsimple North

0.69

Correlation Coefficient

BMO Short  Wealthsimple North

Poor diversification

The 3 months correlation between BMO and Wealthsimple is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Term 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 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 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 Short i.e., BMO Short and Wealthsimple North go up and down completely randomly.

Pair Corralation between BMO Short and Wealthsimple North

Assuming the 90 days trading horizon BMO Short is expected to generate 21.66 times less return on investment than Wealthsimple North. But when comparing it to its historical volatility, BMO Short Term Bond is 6.03 times less risky than Wealthsimple North. It trades about 0.05 of its potential returns per unit of risk. Wealthsimple North America is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,201  in Wealthsimple North America on April 22, 2025 and sell it today you would earn a total of  309.00  from holding Wealthsimple North America or generate 7.36% 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 North America

BMO Short Term

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Short Term Bond are ranked lower than 3 (%) 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 North

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple North America are ranked lower than 13 (%) 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 Short and Wealthsimple North

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

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.