Correlation Between Bank of Nova Scotia and Bank of America
Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and Bank of America 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 Bank of Nova Scotia and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of Nova and Bank of America, you can compare the effects of market volatilities on Bank of Nova Scotia and Bank of America 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 Bank of Nova Scotia with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and Bank of America.
Diversification Opportunities for Bank of Nova Scotia and Bank of America
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Bank is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and Bank of Nova Scotia 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 Bank of Nova are associated (or correlated) with Bank of America. 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 America has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Bank of America go up and down completely randomly.
Pair Corralation between Bank of Nova Scotia and Bank of America
Considering the 90-day investment horizon Bank of Nova is expected to under-perform the Bank of America. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Nova is 1.47 times less risky than Bank of America. The stock trades about -0.23 of its potential returns per unit of risk. The Bank of America is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,709 in Bank of America on January 26, 2024 and sell it today you would earn a total of 123.00 from holding Bank of America or generate 3.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Bank of Nova vs. Bank of America
Performance |
| Timeline |
| Bank of Nova Scotia |
| Bank of America |
Bank of Nova Scotia and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Nova Scotia and Bank of America
The main advantage of trading using opposite Bank of Nova Scotia and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, Bank of America 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 America will offset losses from the drop in Bank of America's long position.| Bank of Nova Scotia vs. Wells Fargo | Bank of Nova Scotia vs. Aquagold International | Bank of Nova Scotia vs. Thrivent High Yield | Bank of Nova Scotia vs. Morningstar Unconstrained Allocation |
| Bank of America vs. Wells Fargo | Bank of America vs. Aquagold International | Bank of America vs. Thrivent High Yield | Bank of America vs. Morningstar Unconstrained Allocation |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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