Correlation Between Bank of Nova Scotia and American International

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

Diversification Opportunities for Bank of Nova Scotia and American International

0.22

Correlation Coefficient

Bank of Nova Scotia  American International

Modest diversification

The 3 months correlation between Bank and American is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International 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 American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and American International go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and American International

Assuming the 90 days trading horizon The Bank of is expected to under-perform the American International. In addition to that, Bank of Nova Scotia is 1.99 times more volatile than American International Group. It trades about -0.1 of its total potential returns per unit of risk. American International Group is currently generating about -0.1 per unit of volatility. If you would invest  150,526  in American International Group on December 22, 2024 and sell it today you would lose (3,726) from holding American International Group or give up 2.48% of portfolio value over 90 days.

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

The Bank of  vs.  American International Group

Bank of Nova Scotia

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank of Nova Scotia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American International

Risk-Adjusted Performance

Very Weak

Over the last 90 days American International Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, American International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of Nova Scotia and American International

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

The idea behind The Bank of and American International Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.