Correlation Between Bank of Nova Scotia and ECN Capital

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

Diversification Opportunities for Bank of Nova Scotia and ECN Capital

0.82
  Correlation Coefficient

Very poor diversification

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

Pair Corralation between Bank of Nova Scotia and ECN Capital

Assuming the 90 days trading horizon Bank of Nova Scotia is expected to generate 2.02 times less return on investment than ECN Capital. But when comparing it to its historical volatility, Bank of Nova is 5.38 times less risky than ECN Capital. It trades about 0.36 of its potential returns per unit of risk. ECN Capital Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  209.00  in ECN Capital Corp on September 4, 2024 and sell it today you would earn a total of  71.00  from holding ECN Capital Corp or generate 33.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bank of Nova  vs.  ECN Capital Corp

 Performance 
       Timeline  
Bank of Nova Scotia 

Risk-Adjusted Performance

28 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bank of Nova Scotia displayed solid returns over the last few months and may actually be approaching a breakup point.
ECN Capital Corp 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ECN Capital Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ECN Capital displayed solid returns over the last few months and may actually be approaching a breakup point.

Bank of Nova Scotia and ECN Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank of Nova Scotia and ECN Capital

The main advantage of trading using opposite Bank of Nova Scotia and ECN Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, ECN Capital 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 ECN Capital will offset losses from the drop in ECN Capital's long position.
The idea behind Bank of Nova and ECN Capital Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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