Correlation Between Bank of Nova Scotia and Definity Financial

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

Diversification Opportunities for Bank of Nova Scotia and Definity Financial

0.95

Correlation Coefficient

Bank of Nova Scotia  Definity Financial

Almost no diversification

The 3 months correlation between Bank and Definity is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Definity Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definity Financial Corp 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 Definity Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definity Financial Corp has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Definity Financial go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Definity Financial

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.61 times more return on investment than Definity Financial. However, Bank of Nova is 1.64 times less risky than Definity Financial. It trades about -0.4 of its potential returns per unit of risk. Definity Financial Corp is currently generating about -0.25 per unit of risk. If you would invest  7,804  in Bank of Nova on October 12, 2024 and sell it today you would lose (342.00) from holding Bank of Nova or give up 4.38% of portfolio value over 90 days.

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

Bank of Nova  vs.  Definity Financial Corp

Bank of Nova Scotia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 6 (%) 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.

Definity Financial Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Definity Financial Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Definity Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank of Nova Scotia and Definity Financial

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

The idea behind Bank of Nova and Definity Financial Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.