Correlation Between Brookfield Infrastructure and Bank of Nova Scotia

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

Diversification Opportunities for Brookfield Infrastructure and Bank of Nova Scotia

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Brookfield and Bank is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Infrastructure Part 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 Brookfield Infrastructure 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 Brookfield Infrastructure Partners 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 Brookfield Infrastructure i.e., Brookfield Infrastructure and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between Brookfield Infrastructure and Bank of Nova Scotia

Assuming the 90 days trading horizon Brookfield Infrastructure is expected to generate 1.25 times less return on investment than Bank of Nova Scotia. But when comparing it to its historical volatility, Brookfield Infrastructure Partners is 1.2 times less risky than Bank of Nova Scotia. It trades about 0.06 of its potential returns per unit of risk. Bank of Nova is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,716  in Bank of Nova on September 19, 2024 and sell it today you would earn a total of  2,121  from holding Bank of Nova or generate 37.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Brookfield Infrastructure Part  vs.  Bank of Nova

 Performance 
       Timeline  
Brookfield Infrastructure 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Infrastructure Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield Infrastructure is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Bank of Nova Scotia 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield Infrastructure and Bank of Nova Scotia Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Brookfield Infrastructure and Bank of Nova Scotia

The main advantage of trading using opposite Brookfield Infrastructure and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield Infrastructure 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 Brookfield Infrastructure Partners 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.
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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