Correlation Between National Bank and Bank of Nova Scotia

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

Diversification Opportunities for National Bank and Bank of Nova Scotia

0.73

Correlation Coefficient

National Bank  Bank of Nova Scotia

Poor diversification

The 3 months correlation between National and Bank is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of 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 National Bank 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 National Bank of 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 National Bank i.e., National Bank and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between National Bank and Bank of Nova Scotia

Assuming the 90 days trading horizon National Bank of is expected to generate 0.81 times more return on investment than Bank of Nova Scotia. However, National Bank of is 1.23 times less risky than Bank of Nova Scotia. It trades about 0.26 of its potential returns per unit of risk. Bank of Nova is currently generating about 0.14 per unit of risk. If you would invest  2,285  in National Bank of on October 4, 2024 and sell it today you would earn a total of  250.00  from holding National Bank of or generate 10.94% return on investment over 90 days.

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

National Bank of  vs.  Bank of Nova

National Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 National Bank and Bank of Nova Scotia

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

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.