Correlation Between Bank of Nova Scotia and Brookfield Renewable

Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and Brookfield Renewable 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 Brookfield Renewable into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Nova and Brookfield Renewable Partners, you can compare the effects of market volatilities on Bank of Nova Scotia and Brookfield Renewable 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 Brookfield Renewable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and Brookfield Renewable.

Diversification Opportunities for Bank of Nova Scotia and Brookfield Renewable

-0.54

Correlation Coefficient

Bank of Nova Scotia  Brookfield Renewable

Excellent diversification

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

Pair Corralation between Bank of Nova Scotia and Brookfield Renewable

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.5 times more return on investment than Brookfield Renewable. However, Bank of Nova is 2.01 times less risky than Brookfield Renewable. It trades about 0.05 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about 0.0 per unit of risk. If you would invest  5,950  in Bank of Nova on October 10, 2024 and sell it today you would earn a total of  1,521  from holding Bank of Nova or generate 25.56% return on investment over 90 days.

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

Bank of Nova  vs.  Brookfield Renewable Partners

Bank of Nova Scotia

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Bank of Nova Scotia is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Brookfield Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Renewable Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Brookfield Renewable 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 Brookfield Renewable

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

The idea behind Bank of Nova and Brookfield Renewable Partners 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.