Correlation Between Bank of Nova Scotia and First National
Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and First National 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 Nova Scotia and First National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of Nova and First National Financial, you can compare the effects of market volatilities on Bank of Nova Scotia and First National 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 Nova Scotia with a short position of First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and First National.
Diversification Opportunities for Bank of Nova Scotia and First National
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Bank and First is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial and Bank of Nova Scotia 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 Nova are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and First National go up and down completely randomly.
Pair Corralation between Bank of Nova Scotia and First National
Assuming the 90 days trading horizon Bank of Nova is expected to under-perform the First National. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Nova is 2.21 times less risky than First National. The stock trades about -0.13 of its potential returns per unit of risk. The First National Financial is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 1,575 in First National Financial on November 4, 2024 and sell it today you would lose (36.00) from holding First National Financial or give up 2.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of Nova vs. First National Financial
Performance |
| Timeline |
| Bank of Nova Scotia |
| First National Financial |
Bank of Nova Scotia and First National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Nova Scotia and First National
The main advantage of trading using opposite Bank of Nova Scotia and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, First National 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 First National will offset losses from the drop in First National's long position.| Bank of Nova Scotia vs. Toronto Dominion Bank | Bank of Nova Scotia vs. Royal Bank of | Bank of Nova Scotia vs. Bank of Montreal | Bank of Nova Scotia vs. Canadian Imperial Bank |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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