Correlation Between Bank of Nova Scotia and Falcon Energy

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

Diversification Opportunities for Bank of Nova Scotia and Falcon Energy

0.35

Correlation Coefficient

Bank of Nova Scotia  Falcon Energy

Weak diversification

The 3 months correlation between Bank and Falcon is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials 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 Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Falcon Energy go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Falcon Energy

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.16 times more return on investment than Falcon Energy. However, Bank of Nova is 6.07 times less risky than Falcon Energy. It trades about 0.08 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about -0.01 per unit of risk. If you would invest  7,100  in Bank of Nova on October 25, 2024 and sell it today you would earn a total of  305.00  from holding Bank of Nova or generate 4.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Bank of Nova  vs.  Falcon Energy Materials

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.

Falcon Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Energy Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Falcon Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bank of Nova Scotia and Falcon Energy

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

The idea behind Bank of Nova and Falcon Energy Materials 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.