Correlation Between Dow Jones and Bank of Nova Scotia

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

Diversification Opportunities for Dow Jones and Bank of Nova Scotia

0.48

Correlation Coefficient

Dow Jones  Bank of Nova Scotia

Very weak diversification

The 3 months correlation between Dow and Bank is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between Dow Jones and Bank of Nova Scotia

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Bank of Nova Scotia. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.96 times less risky than Bank of Nova Scotia. The index trades about -0.08 of its potential returns per unit of risk. The The Bank of is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,928  in The Bank of on October 7, 2024 and sell it today you would earn a total of  296.00  from holding The Bank of or generate 6.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.86%
Values	Daily Returns

Dow Jones Industrial  vs.  The Bank of

Pair Trading with Dow Jones and Bank of Nova Scotia

The main advantage of trading using opposite Dow Jones and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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 Dow Jones Industrial 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.