Correlation Between Bank of Nova Scotia and Home Depot
Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and Home Depot 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 Home Depot 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 The Home Depot, you can compare the effects of market volatilities on Bank of Nova Scotia and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and Home Depot.
Diversification Opportunities for Bank of Nova Scotia and Home Depot
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Home is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Home Depot go up and down completely randomly.
Pair Corralation between Bank of Nova Scotia and Home Depot
Assuming the 90 days trading horizon The Bank of is expected to generate 0.45 times more return on investment than Home Depot. However, The Bank of is 2.2 times less risky than Home Depot. It trades about -0.1 of its potential returns per unit of risk. The Home Depot is currently generating about -0.07 per unit of risk. If you would invest 108,499 in The Bank of on December 27, 2024 and sell it today you would lose (4,999) from holding The Bank of or give up 4.61% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
The Bank of vs. The Home Depot
Performance |
Timeline |
Bank of Nova Scotia |
Home Depot |
Bank of Nova Scotia and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of Nova Scotia and Home Depot
The main advantage of trading using opposite Bank of Nova Scotia and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.Bank of Nova Scotia vs. FibraHotel | Bank of Nova Scotia vs. United States Steel | Bank of Nova Scotia vs. DXC Technology | Bank of Nova Scotia vs. Micron Technology |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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