Correlation Between CVS HEALTH and Bank of Nova Scotia

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

Diversification Opportunities for CVS HEALTH and Bank of Nova Scotia

-0.49

Correlation Coefficient

CVS HEALTH  Bank of Nova Scotia

Very good diversification

The 3 months correlation between CVS and Bank is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding CVS HEALTH CDR and Bank of Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nova Scotia and CVS HEALTH 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 CVS HEALTH CDR 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 CVS HEALTH i.e., CVS HEALTH and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between CVS HEALTH and Bank of Nova Scotia

Assuming the 90 days trading horizon CVS HEALTH CDR is expected to under-perform the Bank of Nova Scotia. In addition to that, CVS HEALTH is 3.4 times more volatile than Bank of Nova. It trades about -0.25 of its total potential returns per unit of risk. Bank of Nova is currently generating about 0.12 per unit of volatility. If you would invest  7,422  in Bank of Nova on October 7, 2024 and sell it today you would earn a total of  291.00  from holding Bank of Nova or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CVS HEALTH CDR  vs.  Bank of Nova

CVS HEALTH CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with CVS HEALTH and Bank of Nova Scotia

The main advantage of trading using opposite CVS HEALTH and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS HEALTH 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 CVS HEALTH CDR and Bank of Nova 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.