Correlation Between Bank of Nova Scotia and Wells Fargo

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

Diversification Opportunities for Bank of Nova Scotia and Wells Fargo

0.11

Correlation Coefficient

Bank of Nova Scotia  Wells Fargo

Average diversification

The 3 months correlation between Bank and Wells is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo 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 Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Wells Fargo go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Wells Fargo

Considering the 90-day investment horizon Bank of Nova is expected to under-perform the Wells Fargo. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Nova is 1.9 times less risky than Wells Fargo. The stock trades about -0.14 of its potential returns per unit of risk. The Wells Fargo is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,076  in Wells Fargo on December 27, 2024 and sell it today you would earn a total of  271.00  from holding Wells Fargo or generate 3.83% return on investment over 90 days.

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

Bank of Nova  vs.  Wells Fargo

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 uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Wells Fargo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Wells Fargo is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of Nova Scotia and Wells Fargo

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

The idea behind Bank of Nova and Wells Fargo 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.