Correlation Between Bank of Nova Scotia and Fairfax Financial
Can any of the company-specific risk be diversified away by investing in both Bank of Nova Scotia and Fairfax Financial 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 Fairfax Financial 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 Fairfax Financial Holdings, you can compare the effects of market volatilities on Bank of Nova Scotia and Fairfax Financial 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 Fairfax Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Nova Scotia and Fairfax Financial.
Diversification Opportunities for Bank of Nova Scotia and Fairfax Financial
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Fairfax is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial 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 Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Fairfax Financial go up and down completely randomly.
Pair Corralation between Bank of Nova Scotia and Fairfax Financial
Assuming the 90 days trading horizon Bank of Nova is expected to under-perform the Fairfax Financial. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Nova is 1.17 times less risky than Fairfax Financial. The stock trades about -0.25 of its potential returns per unit of risk. The Fairfax Financial Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 148,280 in Fairfax Financial Holdings on January 26, 2024 and sell it today you would lose (555.00) from holding Fairfax Financial Holdings or give up 0.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of Nova vs. Fairfax Financial Holdings
Performance |
| Timeline |
| Bank of Nova Scotia |
| Fairfax Financial |
Bank of Nova Scotia and Fairfax Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Nova Scotia and Fairfax Financial
The main advantage of trading using opposite Bank of Nova Scotia and Fairfax Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, Fairfax Financial 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 Fairfax Financial will offset losses from the drop in Fairfax Financial's long position.| Bank of Nova Scotia vs. Brookfield | Bank of Nova Scotia vs. Apple Inc CDR | Bank of Nova Scotia vs. CHEVRON CDR | Bank of Nova Scotia vs. Amazon CDR |
| Fairfax Financial vs. Amazon CDR | Fairfax Financial vs. Apple Inc CDR | Fairfax Financial vs. Alphabet Inc CDR | Fairfax Financial vs. Walmart Inc CDR |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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