Correlation Between Wealthsimple Developed and Wealthsimple North

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

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

Diversification Opportunities for Wealthsimple Developed and Wealthsimple North

-0.19

Correlation Coefficient

Wealthsimple Developed  Wealthsimple North

Good diversification

The 3 months correlation between Wealthsimple and Wealthsimple is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Wealthsimple Developed Markets and Wealthsimple North America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple North and Wealthsimple Developed 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 Wealthsimple Developed Markets 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 Wealthsimple Developed i.e., Wealthsimple Developed and Wealthsimple North go up and down completely randomly.

Pair Corralation between Wealthsimple Developed and Wealthsimple North

Assuming the 90 days trading horizon Wealthsimple Developed is expected to generate 5.93 times less return on investment than Wealthsimple North. In addition to that, Wealthsimple Developed is 1.3 times more volatile than Wealthsimple North America. It trades about 0.02 of its total potential returns per unit of risk. Wealthsimple North America is currently generating about 0.15 per unit of volatility. If you would invest  4,298  in Wealthsimple North America on September 13, 2024 and sell it today you would earn a total of  218.00  from holding Wealthsimple North America or generate 5.07% return on investment over 90 days.

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

Wealthsimple Developed Markets  vs.  Wealthsimple North America

Wealthsimple Developed

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple Developed Markets are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Wealthsimple Developed 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

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple North America are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Wealthsimple North is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Wealthsimple Developed and Wealthsimple North

The main advantage of trading using opposite Wealthsimple Developed and Wealthsimple North positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wealthsimple Developed 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 Wealthsimple Developed Markets 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.