Correlation Between Bank of Nova Scotia and Walmart

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

Diversification Opportunities for Bank of Nova Scotia and Walmart

0.49

Correlation Coefficient

Bank of Nova Scotia  Walmart

Very weak diversification

The 3 months correlation between Bank and Walmart is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Walmart go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Walmart

Assuming the 90 days trading horizon The Bank of is expected to generate 0.42 times more return on investment than Walmart. However, The Bank of is 2.38 times less risky than Walmart. It trades about -0.09 of its potential returns per unit of risk. Walmart is currently generating about -0.05 per unit of risk. If you would invest  108,499  in The Bank of on December 29, 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	Weak
Accuracy	98.41%
Values	Daily Returns

The Bank of  vs.  Walmart

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.

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of Nova Scotia and Walmart

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

The idea behind The Bank of and Walmart 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.