Correlation Between North American and Bank of Nova Scotia
Can any of the company-specific risk be diversified away by investing in both North American 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 North American 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 North American Financial and Bank of Nova, you can compare the effects of market volatilities on North American 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 North American with a short position of Bank of Nova Scotia. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Bank of Nova Scotia.
Diversification Opportunities for North American and Bank of Nova Scotia
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between North and Bank is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial 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 North American 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 North American Financial 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 North American i.e., North American and Bank of Nova Scotia go up and down completely randomly.
Pair Corralation between North American and Bank of Nova Scotia
Assuming the 90 days trading horizon North American Financial is expected to generate 2.41 times more return on investment than Bank of Nova Scotia. However, North American is 2.41 times more volatile than Bank of Nova. It trades about 0.27 of its potential returns per unit of risk. Bank of Nova is currently generating about 0.55 per unit of risk. If you would invest 685.00 in North American Financial on August 28, 2024 and sell it today you would earn a total of 75.00 from holding North American Financial or generate 10.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Financial vs. Bank of Nova
Performance |
| Timeline |
| North American Financial |
| Bank of Nova Scotia |
North American and Bank of Nova Scotia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Bank of Nova Scotia
The main advantage of trading using opposite North American and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. Dividend Growth Split | North American vs. Dividend 15 Split | North American vs. Financial 15 Split | North American vs. Dividend 15 Split |
| 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 |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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