Correlation Between CDN IMPERIAL and Bank of Nova Scotia

Can any of the company-specific risk be diversified away by investing in both CDN IMPERIAL and Bank of Nova Scotia 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 CDN IMPERIAL and Bank of Nova Scotia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CDN IMPERIAL BANK and The Bank of, you can compare the effects of market volatilities on CDN IMPERIAL and Bank of Nova Scotia 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 CDN IMPERIAL with a short position of Bank of Nova Scotia. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDN IMPERIAL and Bank of Nova Scotia.

Diversification Opportunities for CDN IMPERIAL and Bank of Nova Scotia

0.69

Correlation Coefficient

CDN IMPERIAL  Bank of Nova Scotia

Poor diversification

The 3 months correlation between CDN and Bank is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and The Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nova Scotia and CDN IMPERIAL 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 CDN IMPERIAL BANK are associated (or correlated) with Bank of Nova Scotia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nova Scotia has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Bank of Nova Scotia

Assuming the 90 days trading horizon CDN IMPERIAL is expected to generate 1.29 times less return on investment than Bank of Nova Scotia. But when comparing it to its historical volatility, CDN IMPERIAL BANK is 1.16 times less risky than Bank of Nova Scotia. It trades about 0.08 of its potential returns per unit of risk. The Bank of is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,982  in The Bank of on October 9, 2024 and sell it today you would earn a total of  218.00  from holding The Bank of or generate 4.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.37%
Values	Daily Returns

CDN IMPERIAL BANK  vs.  The Bank of

CDN IMPERIAL BANK

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, CDN IMPERIAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bank of Nova Scotia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CDN IMPERIAL and Bank of Nova Scotia

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

The idea behind CDN IMPERIAL BANK and The Bank of 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.