Correlation Between Bank of Montreal and Bank of Nova Scotia
Can any of the company-specific risk be diversified away by investing in both Bank of Montreal and Bank of Nova Scotia 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 Bank of Montreal and Bank of Nova Scotia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of Montreal and Bank of Nova, you can compare the effects of market volatilities on Bank of Montreal and Bank of Nova Scotia 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 Bank of Montreal with a short position of Bank of Nova Scotia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Montreal and Bank of Nova Scotia.
Diversification Opportunities for Bank of Montreal and Bank of Nova Scotia
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Bank is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Montreal and Bank of Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nova Scotia and Bank of Montreal 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 Bank of Montreal are associated (or correlated) with Bank of Nova Scotia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nova Scotia has no effect on the direction of Bank of Montreal i.e., Bank of Montreal and Bank of Nova Scotia go up and down completely randomly.
Pair Corralation between Bank of Montreal and Bank of Nova Scotia
Considering the 90-day investment horizon Bank of Montreal is expected to generate 2.62 times less return on investment than Bank of Nova Scotia. In addition to that, Bank of Montreal is 1.08 times more volatile than Bank of Nova. It trades about 0.02 of its total potential returns per unit of risk. Bank of Nova is currently generating about 0.05 per unit of volatility. If you would invest 4,395 in Bank of Nova on August 26, 2024 and sell it today you would earn a total of 1,250 from holding Bank of Nova or generate 28.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of Montreal vs. Bank of Nova
Performance |
| Timeline |
| Bank of Montreal |
| Bank of Nova Scotia |
Bank of Montreal and Bank of Nova Scotia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Montreal and Bank of Nova Scotia
The main advantage of trading using opposite Bank of Montreal and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Montreal position performs unexpectedly, Bank of Nova Scotia 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 Bank of Nova Scotia will offset losses from the drop in Bank of Nova Scotia's long position.| Bank of Montreal vs. Canadian Imperial Bank | Bank of Montreal vs. Toronto Dominion Bank | Bank of Montreal vs. Royal Bank of | Bank of Montreal vs. Citigroup |
| Bank of Nova Scotia vs. Toronto Dominion Bank | Bank of Nova Scotia vs. Royal Bank of | Bank of Nova Scotia vs. Canadian Imperial Bank | Bank of Nova Scotia vs. JPMorgan Chase Co |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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