Correlation Between Constellation Software and Bank of Nova Scotia

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

Diversification Opportunities for Constellation Software and Bank of Nova Scotia

0.88

Correlation Coefficient

Constellation Software  Bank of Nova Scotia

Very poor diversification

The 3 months correlation between Constellation and Bank is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Bank of Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nova Scotia and Constellation Software 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 Constellation Software 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 Constellation Software i.e., Constellation Software and Bank of Nova Scotia go up and down completely randomly.

Pair Corralation between Constellation Software and Bank of Nova Scotia

Assuming the 90 days trading horizon Constellation Software is expected to under-perform the Bank of Nova Scotia. In addition to that, Constellation Software is 1.56 times more volatile than Bank of Nova. It trades about -0.12 of its total potential returns per unit of risk. Bank of Nova is currently generating about -0.16 per unit of volatility. If you would invest  7,952  in Bank of Nova on September 28, 2024 and sell it today you would lose (249.00) from holding Bank of Nova or give up 3.13% of portfolio value over 90 days.

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

Constellation Software  vs.  Bank of Nova

Constellation Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Constellation Software is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Bank of Nova Scotia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nova are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Bank of Nova Scotia is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Constellation Software and Bank of Nova Scotia

The main advantage of trading using opposite Constellation Software and Bank of Nova Scotia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software 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 Constellation Software and Bank of Nova 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.