Correlation Between Bank of Nova Scotia and Canlan Ice

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

Diversification Opportunities for Bank of Nova Scotia and Canlan Ice

0.59

Correlation Coefficient

Bank of Nova Scotia  Canlan Ice

Very weak diversification

The 3 months correlation between Bank and Canlan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Canlan Ice Sports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canlan Ice Sports 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 Canlan Ice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canlan Ice Sports has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Canlan Ice go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Canlan Ice

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.33 times more return on investment than Canlan Ice. However, Bank of Nova is 3.04 times less risky than Canlan Ice. It trades about -0.07 of its potential returns per unit of risk. Canlan Ice Sports is currently generating about -0.21 per unit of risk. If you would invest  7,780  in Bank of Nova on October 5, 2024 and sell it today you would lose (55.00) from holding Bank of Nova or give up 0.71% 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.  Canlan Ice Sports

Bank of Nova Scotia

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Canlan Ice Sports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canlan Ice Sports has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Canlan Ice 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 Canlan Ice

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

The idea behind Bank of Nova and Canlan Ice Sports 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.