Correlation Between Wealthsimple North and Wealthsimple Developed

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

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

Diversification Opportunities for Wealthsimple North and Wealthsimple Developed

-0.18

Correlation Coefficient

Wealthsimple North  Wealthsimple Developed

Good diversification

The 3 months correlation between Wealthsimple and Wealthsimple is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Wealthsimple North America and Wealthsimple Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple Developed and Wealthsimple North 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 North America 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 Wealthsimple North i.e., Wealthsimple North and Wealthsimple Developed go up and down completely randomly.

Pair Corralation between Wealthsimple North and Wealthsimple Developed

Assuming the 90 days trading horizon Wealthsimple North America is expected to generate 0.78 times more return on investment than Wealthsimple Developed. However, Wealthsimple North America is 1.28 times less risky than Wealthsimple Developed. It trades about 0.17 of its potential returns per unit of risk. Wealthsimple Developed Markets is currently generating about 0.02 per unit of risk. If you would invest  4,257  in Wealthsimple North America on September 12, 2024 and sell it today you would earn a total of  259.00  from holding Wealthsimple North America or generate 6.08% return on investment over 90 days.

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

Wealthsimple North America  vs.  Wealthsimple Developed Markets

Wealthsimple North

Risk-Adjusted Performance

13 of 100

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 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.

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.

Pair Trading with Wealthsimple North and Wealthsimple Developed

The main advantage of trading using opposite Wealthsimple North and Wealthsimple Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wealthsimple North 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 Wealthsimple North America 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.