Correlation Between BMO High and Wealthsimple North
Can any of the company-specific risk be diversified away by investing in both BMO High 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 High 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 High Yield and Wealthsimple North America, you can compare the effects of market volatilities on BMO High 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 High with a short position of Wealthsimple North. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMO High and Wealthsimple North.
Diversification Opportunities for BMO High and Wealthsimple North
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BMO and Wealthsimple is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BMO High Yield 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 High 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 High Yield 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 High i.e., BMO High and Wealthsimple North go up and down completely randomly.
Pair Corralation between BMO High and Wealthsimple North
Assuming the 90 days trading horizon BMO High is expected to generate 2.29 times less return on investment than Wealthsimple North. But when comparing it to its historical volatility, BMO High Yield is 1.64 times less risky than Wealthsimple North. It trades about 0.1 of its potential returns per unit of risk. Wealthsimple North America is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 3,867 in Wealthsimple North America on August 25, 2024 and sell it today you would earn a total of 616.00 from holding Wealthsimple North America or generate 15.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BMO High Yield vs. Wealthsimple North America
Performance |
| Timeline |
| BMO High Yield |
| Wealthsimple North |
BMO High and Wealthsimple North Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BMO High and Wealthsimple North
The main advantage of trading using opposite BMO High and Wealthsimple North positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMO High 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 High vs. BMO Mid Federal | BMO High vs. BMO Short Corporate | BMO High vs. BMO Emerging Markets | BMO High vs. BMO Long Corporate |
| Wealthsimple North vs. BMO Mid Federal | Wealthsimple North vs. BMO High Yield | Wealthsimple North vs. iShares Core Canadian | Wealthsimple North vs. BMO Short Corporate |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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