Correlation Between Bank of Nova Scotia and HOME DEPOT

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

Diversification Opportunities for Bank of Nova Scotia and HOME DEPOT

0.75

Correlation Coefficient

Bank of Nova Scotia  HOME DEPOT

Poor diversification

The 3 months correlation between Bank and HOME is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Nova and HOME DEPOT CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT CDR 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 HOME DEPOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOME DEPOT CDR has no effect on the direction of Bank of Nova Scotia i.e., Bank of Nova Scotia and HOME DEPOT go up and down completely randomly.

Pair Corralation between Bank of Nova Scotia and HOME DEPOT

Assuming the 90 days trading horizon Bank of Nova is expected to generate 0.7 times more return on investment than HOME DEPOT. However, Bank of Nova is 1.43 times less risky than HOME DEPOT. It trades about 0.22 of its potential returns per unit of risk. HOME DEPOT CDR is currently generating about 0.12 per unit of risk. If you would invest  7,046  in Bank of Nova on September 17, 2024 and sell it today you would earn a total of  846.00  from holding Bank of Nova or generate 12.01% return on investment over 90 days.

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

Bank of Nova  vs.  HOME DEPOT CDR

Bank of Nova Scotia

Risk-Adjusted Performance

17 of 100

Solid

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

HOME DEPOT CDR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HOME DEPOT CDR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, HOME DEPOT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of Nova Scotia and HOME DEPOT

The main advantage of trading using opposite Bank of Nova Scotia and HOME DEPOT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Nova Scotia position performs unexpectedly, HOME DEPOT 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 HOME DEPOT will offset losses from the drop in HOME DEPOT's long position.

The idea behind Bank of Nova and HOME DEPOT CDR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.