Correlation Between Bank of Nova Scotia and Citigroup

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

Diversification Opportunities for Bank of Nova Scotia and Citigroup

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Bank and Citigroup is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bank Of Nova and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and Citigroup go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and Citigroup

Considering the 90-day investment horizon Bank of Nova Scotia is expected to generate 2.4 times less return on investment than Citigroup. But when comparing it to its historical volatility, Bank Of Nova is 1.23 times less risky than Citigroup. It trades about 0.29 of its potential returns per unit of risk. Citigroup is currently generating about 0.56 of returns per unit of risk over similar time horizon. If you would invest  5,571  in Citigroup on December 29, 2023 and sell it today you would earn a total of  704.00  from holding Citigroup or generate 12.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bank Of Nova  vs.  Citigroup

 Performance 
       Timeline  
Bank of Nova Scotia 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of Nova are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Bank of Nova Scotia may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Citigroup 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bank of Nova Scotia and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of Nova Scotia and Citigroup

The main advantage of trading using opposite Bank of Nova Scotia and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, Citigroup 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 Citigroup will offset losses from the drop in Citigroup's long position.
The idea behind Bank Of Nova and Citigroup 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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