Correlation Between Bank of Nova Scotia and HSBC SP

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Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and HSBC SP 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 HSBC SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Bank of and HSBC SP 500, you can compare the effects of market volatilities on Bank of Nova Scotia and HSBC SP 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 HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and HSBC SP.

Diversification Opportunities for Bank of Nova Scotia and HSBC SP

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Bank and HSBC is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and HSBC SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC SP 500 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 The Bank of are associated (or correlated) with HSBC SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC SP 500 has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and HSBC SP go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and HSBC SP

Assuming the 90 days horizon The Bank of is expected to under-perform the HSBC SP. In addition to that, Bank of Nova Scotia is 1.45 times more volatile than HSBC SP 500. It trades about -0.07 of its total potential returns per unit of risk. HSBC SP 500 is currently generating about 0.0 per unit of volatility. If you would invest  5,507  in HSBC SP 500 on October 5, 2024 and sell it today you would lose (4.00) from holding HSBC SP 500 or give up 0.07% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

The Bank of  vs.  HSBC SP 500

 Performance 
       Timeline  
Bank of Nova Scotia 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Modest
Over the last 90 days The Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.
HSBC SP 500 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Solid
Over the last 90 days HSBC SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bank of Nova Scotia and HSBC SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of Nova Scotia and HSBC SP

The main advantage of trading using opposite Bank of Nova Scotia and HSBC SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, HSBC SP 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 HSBC SP will offset losses from the drop in HSBC SP's long position.
The idea behind The Bank of and HSBC SP 500 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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