Correlation Between Bank of Nova Scotia and Brookfield

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

Diversification Opportunities for Bank of Nova Scotia and Brookfield

0.5

Correlation Coefficient

Bank of Nova Scotia  Brookfield

Very weak diversification

The 3 months correlation between Bank and Brookfield is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Brookfield go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Brookfield

Assuming the 90 days trading horizon Bank of Nova is expected to generate 1.25 times more return on investment than Brookfield. However, Bank of Nova Scotia is 1.25 times more volatile than Brookfield. It trades about 0.26 of its potential returns per unit of risk. Brookfield is currently generating about 0.1 per unit of risk. If you would invest  6,923  in Bank of Nova on September 12, 2024 and sell it today you would earn a total of  993.00  from holding Bank of Nova or generate 14.34% return on investment over 90 days.

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

Bank of Nova  vs.  Brookfield

Bank of Nova Scotia

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia displayed solid returns over the last few months and may actually be approaching a breakup point.

Brookfield

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield 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

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

The idea behind Bank of Nova and Brookfield 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.