Correlation Between Bank of Nova Scotia and National Bank

Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and National Bank 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 National Bank 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 National Bank of, you can compare the effects of market volatilities on Bank of Nova Scotia and National Bank 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 National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and National Bank.

Diversification Opportunities for Bank of Nova Scotia and National Bank

0.93

Correlation Coefficient

Bank of Nova Scotia  National Bank

Almost no diversification

The 3 months correlation between Bank and National is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and National Bank go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and National Bank

Assuming the 90 days trading horizon Bank of Nova Scotia is expected to generate 1.35 times less return on investment than National Bank. In addition to that, Bank of Nova Scotia is 1.97 times more volatile than National Bank of. It trades about 0.21 of its total potential returns per unit of risk. National Bank of is currently generating about 0.55 per unit of volatility. If you would invest  13,240  in National Bank of on September 5, 2024 and sell it today you would earn a total of  836.00  from holding National Bank of or generate 6.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Bank of Nova  vs.  National Bank of

Bank of Nova Scotia

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia displayed solid returns over the last few months and may actually be approaching a breakup point.

National Bank

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, National Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Nova Scotia and National Bank

The main advantage of trading using opposite Bank of Nova Scotia and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, National Bank 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 National Bank will offset losses from the drop in National Bank's long position.

The idea behind Bank of Nova and National Bank of pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.