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 Corporate 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
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BMO and Wealthsimple is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BMO Short Corporate 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 Corporate 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 5.4 times less return on investment than Wealthsimple North. But when comparing it to its historical volatility, BMO Short Corporate is 3.77 times less risky than Wealthsimple North. It trades about 0.15 of its potential returns per unit of risk. Wealthsimple North America is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 4,220 in Wealthsimple North America on August 29, 2024 and sell it today you would earn a total of 325.00 from holding Wealthsimple North America or generate 7.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO Short Corporate vs. Wealthsimple North America
Performance |
| Timeline |
| BMO Short Corporate |
| Wealthsimple North |
BMO Short and Wealthsimple North Volatility Contrast
Predicted Return Density |
| Returns |
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.| BMO Short vs. BMO Long Federal | BMO Short vs. BMO Mid Federal | BMO Short vs. BMO Mid Corporate | BMO Short vs. BMO High Yield |
| Wealthsimple North vs. Wealthsimple Developed Markets | Wealthsimple North vs. BMO Mid Provincial | Wealthsimple North vs. BMO Long Federal | Wealthsimple North vs. BMO Government Bond |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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