Correlation Between Bank of Nova Scotia and NextSource Materials
Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and NextSource Materials 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 NextSource Materials 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 NextSource Materials, you can compare the effects of market volatilities on Bank of Nova Scotia and NextSource Materials 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 NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and NextSource Materials.
Diversification Opportunities for Bank of Nova Scotia and NextSource Materials
-0.95 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Bank and NextSource is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and NextSource Materials go up and down completely randomly.
Pair Corralation between Bank of Nova Scotia and NextSource Materials
Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.25 times more return on investment than NextSource Materials. However, Bank of Nova is 3.95 times less risky than NextSource Materials. It trades about 0.06 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.06 per unit of risk. If you would invest 5,950 in Bank of Nova on September 3, 2024 and sell it today you would earn a total of 2,035 from holding Bank of Nova or generate 34.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of Nova vs. NextSource Materials
Performance |
| Timeline |
| Bank of Nova Scotia |
| NextSource Materials |
Bank of Nova Scotia and NextSource Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Nova Scotia and NextSource Materials
The main advantage of trading using opposite Bank of Nova Scotia and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, NextSource Materials 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 NextSource Materials will offset losses from the drop in NextSource Materials' 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 |
| NextSource Materials vs. Leading Edge Materials | NextSource Materials vs. Northern Graphite | NextSource Materials vs. Lomiko Metals | NextSource Materials vs. Elcora Advanced Materials |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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