Correlation Between Costco Wholesale and Bank of Nova Scotia

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

Diversification Opportunities for Costco Wholesale and Bank of Nova Scotia

0.82

Correlation Coefficient

Costco Wholesale  Bank of Nova Scotia

Very poor diversification

The 3 months correlation between Costco and Bank is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale i.e., Costco Wholesale and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between Costco Wholesale and Bank of Nova Scotia

Assuming the 90 days trading horizon Costco Wholesale is expected to under-perform the Bank of Nova Scotia. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale is 2.73 times less risky than Bank of Nova Scotia. The stock trades about -0.02 of its potential returns per unit of risk. The The Bank of is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  101,800  in The Bank of on September 24, 2024 and sell it today you would earn a total of  8,200  from holding The Bank of or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Costco Wholesale  vs.  The Bank of

Costco Wholesale

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of Nova Scotia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bank of Nova Scotia showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Bank of Nova Scotia

The main advantage of trading using opposite Costco Wholesale and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.