Correlation Between Bank of Nova Scotia and JPM America

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

Diversification Opportunities for Bank of Nova Scotia and JPM America

0.89

Correlation Coefficient

Bank of Nova Scotia  JPM America

Very poor diversification

The 3 months correlation between Bank and JPM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and JPM America Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPM America Equity 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 JPM America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPM America Equity has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and JPM America go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and JPM America

Assuming the 90 days horizon The Bank of is expected to generate 1.21 times more return on investment than JPM America. However, Bank of Nova Scotia is 1.21 times more volatile than JPM America Equity. It trades about -0.07 of its potential returns per unit of risk. JPM America Equity is currently generating about -0.11 per unit of risk. If you would invest  5,222  in The Bank of on October 5, 2024 and sell it today you would lose (67.00) from holding The Bank of or give up 1.28% of portfolio value over 90 days.

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

The Bank of  vs.  JPM America Equity

Bank of Nova Scotia

Risk-Adjusted Performance

0 of 100

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.

JPM America Equity

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days JPM America Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather unsteady technical and fundamental indicators, JPM America may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bank of Nova Scotia and JPM America

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

The idea behind The Bank of and JPM America Equity 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.