Correlation Between TopBuild Corp and Bank of Nova Scotia

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

Diversification Opportunities for TopBuild Corp and Bank of Nova Scotia

0.9

Correlation Coefficient

TopBuild Corp  Bank of Nova Scotia

Almost no diversification

The 3 months correlation between TopBuild and Bank is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding TopBuild Corp 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 TopBuild Corp 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 TopBuild Corp 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 TopBuild Corp i.e., TopBuild Corp and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between TopBuild Corp and Bank of Nova Scotia

Assuming the 90 days trading horizon TopBuild Corp is expected to generate 1.49 times less return on investment than Bank of Nova Scotia. But when comparing it to its historical volatility, TopBuild Corp is 2.66 times less risky than Bank of Nova Scotia. It trades about 0.22 of its potential returns per unit of risk. The Bank of is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  95,471  in The Bank of on September 27, 2024 and sell it today you would earn a total of  14,529  from holding The Bank of or generate 15.22% return on investment over 90 days.

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

TopBuild Corp  vs.  The Bank of

TopBuild Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TopBuild Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, TopBuild Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of Nova Scotia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bank of Nova Scotia showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TopBuild Corp and Bank of Nova Scotia

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

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.