Correlation Between Bank of Nova Scotia and Berkshire Hathaway

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

Diversification Opportunities for Bank of Nova Scotia and Berkshire Hathaway

0.05

Correlation Coefficient

Bank of Nova Scotia  Berkshire Hathaway

Significant diversification

The 3 months correlation between Bank and Berkshire is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Berkshire Hathaway

Assuming the 90 days trading horizon The Bank of is expected to generate 0.2 times more return on investment than Berkshire Hathaway. However, The Bank of is 4.99 times less risky than Berkshire Hathaway. It trades about 0.22 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.03 per unit of risk. If you would invest  108,499  in The Bank of on October 26, 2024 and sell it today you would earn a total of  1,501  from holding The Bank of or generate 1.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

The Bank of  vs.  Berkshire Hathaway

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 unfluctuating basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Berkshire Hathaway

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Berkshire Hathaway 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 Berkshire Hathaway

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

The idea behind The Bank of and Berkshire Hathaway 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.