Correlation Between Royal Bank and Bank of Nova Scotia
Can any of the company-specific risk be diversified away by investing in both Royal Bank 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 Royal Bank 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 Royal Bank of and Bank of Nova, you can compare the effects of market volatilities on Royal Bank 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 Royal Bank with a short position of Bank of Nova Scotia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Bank of Nova Scotia.
Diversification Opportunities for Royal Bank and Bank of Nova Scotia
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royal and Bank is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of 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 Royal Bank 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 Royal Bank of 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 Royal Bank i.e., Royal Bank and Bank of Nova Scotia go up and down completely randomly.
Pair Corralation between Royal Bank and Bank of Nova Scotia
Assuming the 90 days trading horizon Royal Bank is expected to generate 2.89 times less return on investment than Bank of Nova Scotia. But when comparing it to its historical volatility, Royal Bank of is 1.55 times less risky than Bank of Nova Scotia. It trades about 0.12 of its potential returns per unit of risk. Bank of Nova is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 6,256 in Bank of Nova on September 2, 2024 and sell it today you would earn a total of 1,729 from holding Bank of Nova or generate 27.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. Bank of Nova
Performance |
| Timeline |
| Royal Bank |
| Bank of Nova Scotia |
Royal Bank and Bank of Nova Scotia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and Bank of Nova Scotia
The main advantage of trading using opposite Royal Bank and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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.| Royal Bank vs. Element Fleet Management | Royal Bank vs. DRI Healthcare Trust | Royal Bank vs. Wilmington Capital Management | Royal Bank vs. NeuPath Health |
| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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