Correlation Between Bank of Nova Scotia and E3 Lithium

Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and E3 Lithium 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 E3 Lithium 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 E3 Lithium, you can compare the effects of market volatilities on Bank of Nova Scotia and E3 Lithium 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 E3 Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and E3 Lithium.

Diversification Opportunities for Bank of Nova Scotia and E3 Lithium

0.29

Correlation Coefficient

Bank of Nova Scotia  E3 Lithium

Modest diversification

The 3 months correlation between Bank and ETL is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and E3 Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E3 Lithium 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 E3 Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E3 Lithium has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and E3 Lithium go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and E3 Lithium

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.3 times more return on investment than E3 Lithium. However, Bank of Nova is 3.29 times less risky than E3 Lithium. It trades about -0.17 of its potential returns per unit of risk. E3 Lithium is currently generating about -0.19 per unit of risk. If you would invest  7,869  in Bank of Nova on November 30, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank of Nova  vs.  E3 Lithium

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.

E3 Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days E3 Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Bank of Nova Scotia and E3 Lithium

The main advantage of trading using opposite Bank of Nova Scotia and E3 Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, E3 Lithium 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 E3 Lithium will offset losses from the drop in E3 Lithium's long position.

The idea behind Bank of Nova and E3 Lithium 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.