Correlation Between Bank of Nova Scotia and Bristol Myers

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

Diversification Opportunities for Bank of Nova Scotia and Bristol Myers

0.54

Correlation Coefficient

Bank of Nova Scotia  Bristol Myers

Very weak diversification

The 3 months correlation between Bank and Bristol is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb 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 Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Bristol Myers go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Bristol Myers

Assuming the 90 days trading horizon Bank of Nova Scotia is expected to generate 1.49 times less return on investment than Bristol Myers. But when comparing it to its historical volatility, The Bank of is 1.1 times less risky than Bristol Myers. It trades about 0.09 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  103,161  in Bristol Myers Squibb on October 25, 2024 and sell it today you would earn a total of  15,329  from holding Bristol Myers Squibb or generate 14.86% 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.  Bristol Myers Squibb

Bank of Nova Scotia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bristol Myers Squibb

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bristol Myers Squibb are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bristol Myers showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Nova Scotia and Bristol Myers

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

The idea behind The Bank of and Bristol Myers Squibb 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.