Correlation Between Bank of Nova Scotia and Vanguard ESG

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

Diversification Opportunities for Bank of Nova Scotia and Vanguard ESG

0.57

Correlation Coefficient

Bank of Nova Scotia  Vanguard ESG

Very weak diversification

The 3 months correlation between Bank and Vanguard is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and Vanguard ESG Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Developed 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 Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Developed has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Vanguard ESG go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Vanguard ESG

Assuming the 90 days horizon The Bank of is expected to generate 1.42 times more return on investment than Vanguard ESG. However, Bank of Nova Scotia is 1.42 times more volatile than Vanguard ESG Developed. It trades about 0.1 of its potential returns per unit of risk. Vanguard ESG Developed is currently generating about 0.05 per unit of risk. If you would invest  3,784  in The Bank of on October 5, 2024 and sell it today you would earn a total of  1,371  from holding The Bank of or generate 36.23% return on investment over 90 days.

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

The Bank of  vs.  Vanguard ESG Developed

Bank of Nova Scotia

Risk-Adjusted Performance

0 of 100

OK

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.

Vanguard ESG Developed

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vanguard ESG Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vanguard ESG is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of Nova Scotia and Vanguard ESG

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

The idea behind The Bank of and Vanguard ESG Developed 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..