Correlation Between Bank of Nova Scotia and BRP

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

Diversification Opportunities for Bank of Nova Scotia and BRP

0.56

Correlation Coefficient

Bank of Nova Scotia  BRP

Very weak diversification

The 3 months correlation between Bank and BRP is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and BRP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRP Inc 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 BRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRP Inc has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and BRP go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and BRP

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.36 times more return on investment than BRP. However, Bank of Nova is 2.81 times less risky than BRP. It trades about -0.17 of its potential returns per unit of risk. BRP Inc is currently generating about -0.12 per unit of risk. If you would invest  7,869  in Bank of Nova on December 1, 2024 and sell it today you would lose (687.00) from holding Bank of Nova or give up 8.73% of portfolio value over 90 days.

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

Bank of Nova  vs.  BRP Inc

Bank of Nova Scotia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Nova has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

BRP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Bank of Nova Scotia and BRP

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

The idea behind Bank of Nova and BRP Inc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.