Correlation Between PHN Multi and Bank of Nova Scotia

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

Diversification Opportunities for PHN Multi and Bank of Nova Scotia

0.61

Correlation Coefficient

PHN Multi  Bank of Nova Scotia

Poor diversification

The 3 months correlation between PHN and Bank is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding PHN Multi Style All Cap 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 PHN Multi 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 PHN Multi Style All Cap 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 PHN Multi i.e., PHN Multi and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between PHN Multi and Bank of Nova Scotia

Assuming the 90 days trading horizon PHN Multi Style All Cap is expected to generate 1.19 times more return on investment than Bank of Nova Scotia. However, PHN Multi is 1.19 times more volatile than Bank of Nova. It trades about -0.07 of its potential returns per unit of risk. Bank of Nova is currently generating about -0.21 per unit of risk. If you would invest  2,579  in PHN Multi Style All Cap on December 31, 2024 and sell it today you would lose (107.00) from holding PHN Multi Style All Cap or give up 4.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

PHN Multi Style All Cap  vs.  Bank of Nova

PHN Multi Style

Risk-Adjusted Performance

Very Weak

Over the last 90 days PHN Multi Style All Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy basic indicators, PHN Multi is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Bank of Nova Scotia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Nova has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with PHN Multi and Bank of Nova Scotia

The main advantage of trading using opposite PHN Multi and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PHN Multi 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.

The idea behind PHN Multi Style All Cap and Bank of Nova 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.